Michael Ford (post until Oct. 31/19)
Family

The ABCs of dealing with pensions in a divorce

In the first instalment of a two-part series, Toronto family lawyer Glen Schwartz provides insights into how pensions are treated in divorce.

When a divorcing couple equalizes their assets it often involves figuring out how to best deal with any pension plan either party has, says Toronto family lawyer Glen Schwartz.

Step one is to obtain a valuation of the plan, says Schwartz, partner with Nathens, Siegel Barristers LLP.

This step has become much easier since January 2012, when changes to the Ontario Pension Benefits Act (OPBA) simplified the process for valuing pensions, he tells AdvocateDaily.com.

“Before that, everyone would have to hire actuaries to calculate the numbers based on certain conditions, life expectancy, work,” Schwartz says.

But since the OPBA changes, valuation of most Ontario pensions can be done by simply downloading three forms from the Financial Services Commission of Ontario website, filling them out and sending them to the pension administrator, who will insert the exact value.

One form will need the names and addresses of the parties and the pension plan identification number, the second contains the parties’ agreed dates of marriage and separation, and the third provides the lawyers’ contact information.

“Most of the time, if you have a pension, both lawyers get together and fill out the forms including the date of marriage and separation, and you send it off to the pension administrator who provides a valuation package with the numbers you need to insert into the equalization calculation,” says Schwartz.

However, there is still the issue of taxes and tax rate, which may require the opinion of an accountant or a pension expert.

And that is connected to the next step, which Schwartz says is determining how the value of the pension is going to be shared — whether it will be dealt with separately, divided at source or included in equalization.

If there is no house or cash to satisfy a party’s pension-based claim without cracking open the pension, it can be divided in two and collected by the other party either as a lump sum paid into a locked-in retirement savings account or as a monthly pension at retirement, he says.

It's important as to whether the pension-holder is retired or not at the time of valuation because that determines if the transfer can be done as a lump sum or it has to come out of the monthly payments being received by the pensioner, Schwartz says.

It’s vital for family lawyers to understand pension law because it can sometimes conflict with family law, he adds.

“When dealing with people’s rights to pension, not only does the Family Law Act come into play but also the Pension and Benefits Act if it’s in Ontario, or the federal pension legislation if the employer is regulated federally,” Schwartz says.

For example, he says if a family court order says a former spouse must be paid a certain amount, and the only way to satisfy the claim is by way of a pension, and the pensioner passes away before full payment is received, there’s a potential conflict between a new spouse being entitled to the pension as a surviving spouse and the court order.

“There’s competing legislation, where one party has a right under the court order, and the other party has a right under the Pension Benefits Act,” Schwartz says.

Lawyers must be very careful when satisfying an equalization payment by way of a pension transfer to know if there’s a potential current spouse or any other obligations regarding the pension, he adds.

“When drafting an agreement you have to create a checklist to see what position your client is in as far as the person who’s entitled to a pension, or who owns the pension, and just make sure you’ve covered the appropriate intertwining aspects of the Family Law Act and the Pension Benefits Act to make sure there’s no contradiction or competing claim,” Schwartz says. 

Stay tuned for part two where Schwartz will discuss some of the more common issues that come up with respect to the valuation of pensions.

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