New Pension Valuation Scheme for Separating Spouses In Ontario Law - Starting January 1, 2012
By Douglas J. Manning, Partner, Certified Specialist in Family Law
For years family law lawyers in Ontario (and their clients) having been waiting for (and lobbying for) changes to the legislation governing pensions upon separation. The reason for the desire for change was to be able to treat a spouse’s (or both spouses’) pension(s) more equitably and hopefully in a more straightforward manner . The end goal was to treat the pension as a separate entity and share the growth in the pension during the marriage equally between the parties at the time of separation with each spouse getting their own pension.
Up until now, the process has generally been for the parties and their lawyers to obtain a statement from the pension plan administrator for the pensioned spouse and then forward that statement (usually for “defined benefit” pension plans) to an independent pension valuator. The valuator would also need the marriage details (date of marriage, date of separation, ages of the parties, earnings of the pension member, etc.) and then the pension valuator would perform calculations and provide an estimate of the value of the pension. There has not been a legislated formula establishing precisely how the pension is to be valued. The valuators have relied upon calculations derived from their own industry and been guided on which principles to use by case law decisions determining the preferred methods to be used in a particular type of situation.
Usually the pension valuator will give alternative values for the pension based on the date on which the pension member can retire with an unreduced pension and the date of retirement that is traditionally used (usually 65 years of age). The parties are then left to determine which of the 2 or 3 values provided most accurately reflect the reality of the parties. By that I mean, did the parties always plan for the pension member to retire at the earliest possible age with an unreduced pension or was it going to be necessary for the pension member to work longer?
Once the parties have determined the appropriate value to be used (or a court has decided the value for them) and if the parties wish to divide some portion of the pension so that the non-pensioned spouse receives their own form of pension, then the pension plan administrator must be consulted to make sure that what the parties want to achieve can be achieved under Ontario law. Ontario law restricts the parties to accessing a maximum of 50% of the pension growth from the date of marriage (or cohabitation) to the date of separation to go to the non-pensioned spouse. So if the valuation indicates that the growth in the pension from the date of marriage to the date of separation is $50,000 then the parties can agree to carve off up to $25,000 of the pension to the non-pensioned spouse into their own retirement vehicle.
This process could mean that the pension plan administrator would have to hire their own actuary to make sure that what the parties want done can be done. Also, the benefit which the non-pensioned spouse might receive from the pension may be more or less than the amount estimated in a pension valuation performed as at the date of separation because of a number of factors. These factors include unforeseen investment losses or gains; changes to the benefits provided under the pension plan or restrictions imposed on the plan due to the operation of the 50% rule.
Starting in January 2012 a new process has been legislated to begin. The pension value process will change in 2 important ways. First, the formula used to determine the value of the pension is regulated and the formula will be applied by the pension plan administrator. This means that separating spouses will no longer be required to hire independent pension valuators for pensions governed by provincial legislation. Second, for a pension member who has not yet begun to receive a pension, the amount going to the non-pensioned spouse must be made in the form of an immediate lump-sum transfer from the plan. There will be a single value determined; there will no longer be 2 or more values depending on the particular facts of the case. For members already in receipt of their pension payments at the time of separation then the payment to the non-pensioned spouse must be made by dividing the pension payments between the pension member and the former spouse.
In the typical case this will general mean four steps:
- The pension plan member or their spouse or former spouse makes an Application to the pension plan administrator for a determination of the “family law value” of the pension.
- If the application has been completed correctly then the pension plan administrator will perform the calculations to determine the “family law value” of the pension and provide a statement to this effect to the requesting party.
- The pension member and their spouse (or former spouse) will determine how the “family law value” of the pension is to be treated and obtain a court order or separation agreement reflecting this.
- The spouse or former spouse of the pension member informs the pension plan administrator of their decision to either divide or not divide the family law value of the pension. If the decision is not to divide the value of the pension then the parties have presumably found another way to satisfy the non-pensioned spouse’s share of the pension and thus the pensioned spouse will keep their pension intact.
As you can imagine there are specific government forms that need to be used at each step of the process and the forms vary depending on the type of pension and whether the pension is already “in pay” at the time of separation.
For more handy and easy to understand information about the changes that will take place starting in January 2012 I suggest you visit the government website at: