If I Get Divorced now What Happens to my Pension

Getting divorced after years of marriage is hard on you emotionally, mentally, and let’s face it, financially. Everything you accumulated together as a couple during your married life must now be catalogued, valuated and divided. It’s hard to put a price tag on assets that have so much sentimental value, such as the family home and the furnishings you picked together. At least some assets remain yours, shielded from the actuary’s assessments: your insurance settlement from the car accident, your grandfather’s inheritance money, your pension…

Wait. What happens to your pension when you divorce? The answer may surprise you.

Pension Splitting in Divorce

Pensions are property under the Ontario Family Law Act. Family Statute Law dictates that pensions accumulated during the marriage must be divided after separation with the rest of the property. As part of an equalization payment, courts can order a spouse to immediately transfer a sum out of their pension plan. That means you could be on the hook for 50 percent of your pension. While you might be happy to resolve all the issues now, such an approach could have serious repercussions.

Pensions are problematic because of their complicated nature; there are many ways to calculate the value of the same pension. CPPs (Canada Pension Plans) themselves vary widely. There are average-salary plans, flat benefit plans associated with union membership, defined contribution plans that transfer into an annuity upon retirement, and public-sector plans that are fully indexed for inflation no matter when employment is terminated. Payouts also depend on other factors, such as the age at which the member retires. It’s no wonder divorcing couples are often in the dark about their pensions.

Solving Pension Divorce Problems

Splitting pensions upon divorce can be a contentious issue, but there are options. Often the first step is simply to educate yourself about the family finances prior to the separation. If you are the spouse who generally doesn’t handle the money, now is the time to learn where the debt is and what you’re worth as a couple. That way, at least there won’t be any surprises (like a spouse’s secret debts), and you can begin preparing for the separation, financially and otherwise, in advance.

While pensions do form part of the family property, there are many ways to divide your assets to satisfy the equalization rule rather than splitting each one down the middle. For example, one spouse could receive the family home in lieu of the pension, if both are equally valued.

Professional Help with Pension Divorce Problems

You may not have heard of Certified Divorce Financial Analysts, but they can help: they have special training in the financial implication of separation and divorce, and for a few hundred dollars, they can assess your financial situation in depth. In addition to consulting a financial professional, you should hire a divorce lawyer with expertise in division of property.