Pensions

Pensions are often a very sensitive subject in property equalization discussions. Many clients are upset that they have to include an asset that they have worked so hard for. Some people don’t realize their pension is matrimonial property and included in equalization of assets.

However that is not the case. Pensions are considered matrimonial property and included as an asset for the purpose of calculating Net Family Property (NFP).

Often pensions are a significant asset and in some cases the single largest asset after the matrimonial home.

On January 1, 2012 new legislation was passed in Ontario Legislature that change how pensions are treated in equalization and who does the valuation. The new rules apply to provincial pensions under the Ontario Pensions and Benefits Act.

Property Equalization

Before the rule change, the value of a pension remained with the person who owned it. This treatment was unfair as the whole value of the pension could account for a large portion of one party’s equalization pot and meant that a valuable asset was immediately inaccessible and could impact the person’s ability to start a new life.

Now, property division negotiations can consider an immediate division of pension funds. There are options for how a pension not yet in pay can be shared. For example, a lump sum payment up to the maximum transfer amount allowed can be transferred to the other party’s retirement investment. This opens up much more flexibility in how matrimonial assets are shared with the aim of creating a fair financial outcome for both parties.

Completing Pension Valuation

Before the rule change, pensions were valued by 3rd party professionals – usually actuaries. The new rules require pension members need to apply directly to their pension plan administrator to have a family law valuation of their pensions calculated. The valuation will take time to complete so it’s a good idea to submit the forms as soon as possible as property division cannot be completed without the information included in the valuation.

More info….

• The forms can be found on the Financial Services Commission of Ontario (FSCO) website – www.fsco.gov.on.ca/en/pensions . Check to make sure you are using the correct form.
• All forms are sent to the pension plan administrator – not to FSCO.
• The pension plan administrator will charge a fee for the valuation.
• The value received from the administrator will be used to calculate Net Family Property. The amount is pre-tax and may for adjusted down for contingent tax.
• If the division of assets decisions includes a division or transfer of pension value, a request is submitted to the plan administrator.