Pensions: Dividing at Source

On January 1, 2012, the Ontario Legislature passed new laws with respect to the division of a spouse’s pension.

The major change that affected spouses dealing with their pensions upon the breakdown of the marriage was that pensions could now be divided at source. That meant, instead of including a spouse’s pension in the net family property (and thus subject to an equalization payment), the parties would take the pension out of their respective financial statements and leave it in the hands of a third party (pension plan administrator) to evaluate and subsequently transfer the value of the member spouse’s pension in the form of a lump sum payment once the pension was payable.

However, what if the spouses cannot agree on whether to divide the pension at source or include it in their financial statements?

The member spouse can apply to the courts to have his/her pension divided at source. In order to obtain an order to have a pension divided at source, the judge must be satisfied that the evidence put before the court satisfies section 10.1(4) of the Family Law Act.

The criteria outlined in section 10.1(4) of the Family Law Act are stated as follows:

(4) In determining whether to order the immediate transfer of a lump sum out of a pension plan and in determining the amount to be transferred, the court may consider the following matters and such other matters as the court considers appropriate:

1. The nature of the assets available to each spouse at the time of the hearing.
2. The proportion of a spouse’s net family property that consists of the imputed value, for family law purposes, of his or her interest in the pension plan.
3. The liquidity of the lump sum in the hands of the spouse to whom it would be transferred.
4. Any contingent tax liabilities in respect of the lump sum that would be transferred.
5. The resources available to each spouse to meet his or her needs in retirement and the desirability of maintaining those resources.

To learn more about pensions as well as the services provided by Krol & Krol, call 905.707.3370 today.