Pension and Divorce in Ontario: 3 major steps

Dollar bill in a gold ring

What do you need to know about pension and divorce in Ontario, is that the issue is not any less emotional than the one of a matrimonial home.  The monetary value of a pre-retired teacher’ pension may easily exceed the value of a decent mortgage-free home. Though, unlike real estate, pension is a less tangible asset (when not in pay) and more complex. Here are 3 major steps to take when dealing with pension division during the divorce:

1) Legal and Financial Entitlement 

In Ontario legally married and common-law couples are not treated the same when it comes to pension division. Legal advice is absolutely necessary when dealing with pension division, especially in common-law  situation.

From the Ministry of the Attorney General’s website: http://www.attorneygeneral.jus.gov.on.ca/english/family/divorce/division_of_property/

“These automatic property sharing provisions only apply to married spouses. If you are in a common law relationship, you are not entitled to an equalization payment, but may be entitled to a payment from your spouse to pay you back for a direct or indirect contribution to property that he or she owns”.

With legally married couples, not all the pension value is automatically split. Only the “married years” are subject to division.

2) Pension Valuation for Family Law purpose

Your regular annual pension statement does not have the valuation of your pension as an asset. As of January 2012 the pension plan’s division became more streamlined and simplified. Spouses request pension evaluation directly with the pension administrator for a fee of $600. For more details – refer to:

http://www.fsco.gov.on.ca/en/pensions/Family-Law/Pages/marriage_breakdown.aspx

The pension fund itself can provide for the funds to be rolled over to the member’s ex-spouse’s locked-in retirement account. You no longer have to wait until member’s retirement commences or working out the settlement with other assets.

3) Financial Aspect 

Your pension income will be taxed at the time of the withdrawal. It’s important to project your future retirement income to somewhat estimate the notional tax. You will then have to apply it to achieve a fair split if equating pension asset’ value with the other assets.

Once your pension amount is rolled over to your locked-in investment account – have a solid financial plan on how to manage it. There is nothing more frustrating than, years after division is done,  seeing these assets managed poorly or not managed at all.

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