Pensions and Family Law
In Ontario, on a breakdown of a marriage, either spouse can require an “Equalization of Net Family Property”. This means, at the risk of oversimplifying, a sharing of net worth increase that occurred during the marriage. Each spouse calculates their net worth at the date of marriage and their net worth on the date of separation. The increase, if any, is called that spouse’s “Net Family Property”.
But Net Family Property can be a misleading term. The calculation includes property of every type, wherever located and regardless of whether or not it is used for family purposes, and both tangible and intangible assets. The most significant intangible asset for most people is a pension.
To address this problem the Ontario Pensions Benefit Act and the Family Law Act were amended to give the Court the power to divide the pension to the extent necessary to facilitate the payment of an equalization amount. The Court can require the pension be split or require that a cash amount be paid from the pension (thereby decreasing the value of the pension), to generate the means necessary to make an equalization payment.
There is sometimes a misconception that this new legislation requires pensions be divided. It does not. It only gives the Court the additional tool to permit the pension to be used to generate the money, or money’s worth, needed to make an equalization payment if not otherwise available. Only if the process of calculating an equalization of net family property – that is a sharing of net worth increase that occurred during the marriage – results in the requirement for a payment from one spouse to the other which cannot otherwise be met, will the Court make such an Order.
Assets, including pensions, are not “equalized” on an asset by asset basis, but rather based upon total net worth. The Court can Order the division of the pension to the extent necessary to make the equalization payment. But it is not a mandatory 50-50 split of the pension.
A pension, aside from a home, is typically the most valuable asset. This can lead to difficulties in satisfying the need to make an equalization payment. If only one spouse has a valuable pension, the equalization calculation may result in a large payment from one spouse to the other. But where is the money to come from? If the valuable asset was a bank account or an investment portfolio, or real property, the problem can be solved, if all else fails, by selling the asset to raise money to make the equalization payment. But a pension cannot be sold.
This article is not intended to serve as a comprehensive treatment of the topic and is not legal advice. All legal matters are dealt with pursuant to their specific facts and circumstance. Nothing replaces retaining a qualified, competent lawyer.