How To Manage Pension and Retirement Fund Splitting During Your Divorce?

A old man sitting on a couch facing down with one hand on his head.

Getting divorced later in life can throw a wrench into your retirement planning. Whether it’s a pension, CPP, RRSP, or another retirement plan, these assets are subject to division under the same legal principles that apply to other types of property in a divorce. Despite these hurdles, you can still live a comfortable retired life with the right legal representation and financial planning. At our family law firm in Brampton, we help you take the right steps to protect and manage your financial assets, so you maintain control over your financial future. 

Here’s how we help you manage pension and retirement fund splitting during your divorce: 

1. Gather information about your retirement plans

Pensions and Registered Retirement Savings Plans (RRSPs) are the most common, but we will also need information about any Locked-In Retirement Accounts (LIRAs) and other pension plans that you have. Each of these accounts is governed by specific provincial regulations that dictate how they can be divided during a divorce.

2. Calculate valuation of retirement assets

Finding out the valuation of your retirement assets is the most important part of the process. For pensions, this often means determining the present value of the expected future benefits. If you have a financial manager, we will reach out to them to assess the value based on current balances, contributions, and the expected growth rate of the accounts.

a judge's gavel placed on a book on a wooden table.

3. Explain the legal process

Under Ontario law, the division of retirement assets like pensions and RRSPs during a divorce generally requires a formal valuation and division process. For pensions, the pension administrator will calculate the value of the pension that needs to be divided. The administrator will consider the duration of the relationship, date of separation, and eligibility and entitlement. 

For RRSPs, the division usually depends on the contributions made during the marriage, which are considered marital property. If both spouses have RRSPs, one spouse will pay the other an equalization payment to even out the division.

Many couples in Ontario turn to mediation to resolve how to split retirement assets. It is a less confrontational approach and can be particularly effective in complex situations like the division of retirement funds, if you and your spouse are mutually separating. 

Immediate and future impact

You might negotiate to retain more of your RRSP in exchange for other assets, or you might find it advantageous to take a lump-sum from a pension now, depending on your age, health, and financial circumstances

Tax implications 

Withdrawals from an RRSP, for instance, are taxed as income at your marginal tax rate in the year they are withdrawn, unless transferred directly to an RRSP or a Registered Retirement Income Fund (RRIF) under your name. 

Other pension plans: 

1. Old Age Security (OAS)

This program provides a monthly payment to Canadians 65 years and older. Your divorce won’t have an impact on the payment amount. 

2. Guaranteed Income Supplement (GIS)

It is part of OAS and is allocated for seniors with little to no income and isn’t governed by provincial family law. 

3. Employment-based pension 

Any plan under this category is subjected to equal division, but only the amount that’s accumulated after marriage. 

4. Update your estate and beneficiary information

Once the divorce is finalized, it is mandatory to update your beneficiary designations on all retirement accounts and in your estate planning documents, so the right people receive inheritance after your passing. If not, it might go to your former spouse. 

Sterling Law is committed to guiding you through your divorce with fairness, efficiency, and minimal stress. Book a 15-minute free consultation with us today. 

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