Pensions in Family Law

I am going to preface my general comments about pensions in family law by saying that the topic is quite complex, and I strongly encourage anyone interested in pensions to consult with a family lawyer to get proper legal advice. What I provide here is not legal advice, including because I do not know you, you are not my client and I have no information about your specific circumstances. To get case-specific advice, please speak to a family law lawyer.

Part of the complexity of the subject-matter relates to the fact that pensions can be both an asset, in other words property to be divided between separated spouses, but also an income stream for the purposes of calculating support obligations. The devil, as they say, is in the details. What specific approach is taken to a specific pension in a particular case depends on the facts of that case, and what form the pension has at the separation date. There are also situations in which the pension has one form on separation and another later, and this morphing over time can be relevant, again depending on the issues in the case.

Let's unpack this mouthful a bit. By way of reminder, Ontario's Family Law Act provides that married and separated spouses “equalize” with each other the value of their assets and debts as at the separation date. The legislation provides us with a very specific formula which is to be applied to the tabulation of each spouse’s assets and debts when they prepare their sworn Financial Statement. The relevant dates are the date of marriage and the date of separation (and sometimes the date of the statement as well).

There is no question that pensions are considered assets for the purposes of determining a spouse's “net family property” (a form of net worth in family law) and need to be valued so that the actual dollar value is entered into the net family property calculation. A pension holder is also entitled to deduct taxes in connection with the pension, and this is one of the issues on which I strongly encourage you to obtain legal advice. Further on the issue of valuing a pension, this is generally done by the pension administrator based on specific instructions from the pension holder, and with notice to the other spouse. Once the family law value is calculated by the pension administrator, the pension valuation is automatically sent to both spouses.

So far, I have been referring to a pension in a situation where the pension holder is not yet retired, and his or her pension is not yet “in pay”. In other words, the pension funds are not yet an income stream for the pension holder. Different considerations apply in circumstances where the pension is already in pay at the parties’ separation date. In those situations, it would not be valued as an asset of the pension holder, in other words property to be divided with the other party. Yet, the pension may remain relevant to the discussion of support, as an income stream, and in this case, it may be pension income received by either the support recipient or the support payor.

Some of the challenge of discussing pensions in the family law context relates to the fact that there may be situations in which the value of a pension as an asset was equalized as at the separation date but later, when the pension is in pay, it is also considered income for the purposes of calculating support obligations. Again, the actual treatment of a pension in pay that was previously equalized between the parties depends on the specific circumstances of the case so at the risk of repeating myself, I urge you to obtain case -specific legal advice if your matter involves a pension.

There are mechanisms for either equalizing the pension or dividing the pension at source. Both options are available. In the former case, the pension is valued and included as part of the equalization calculation, along with other assets and debts. In the latter case, rather than including the family law value of the pension in the pension holder’s Financial Statement, it is possible for the parties to agree that the pension will be split at source. This involves their jointly authorizing and directing the pension administrator to divide the pension between them, meaning at the pension level, in the proportions that will be specified by the spouses in the documentation they complete. Often, the split will be on a 50-50 basis but again, the proportions will depend on the specific circumstances of the case.

There are situations in which the value of the pension is equalized but the pension holder does not have any way of satisfying the equalization payment other than by using their pension to do so. In those circumstances, the pension administrator might be instructed to transfer to the other spouse a specific value of the pension to satisfy the equalization payment owing.

I hope you can glean from the general information I have provided above that the subject is complex, and there are various options involved. Please seek fact-specific legal advice to address the unique facts of your case.

©AJJakubowska