Divorce in Canada can be difficult, exclusively when dividing properties like pensions. Often, spouses get a percentage of the pension acquired during the marital or common-law relationship. Also, the dividing process completely depends on various factors, including the nature of pension plans and provincial or state laws.
Therefore, to make your spouse’s entitlement journey easy, we will guide you through the intricacies of pension division after divorce in Canada in this article. In the end, you will understand your rights and entitlements. So, let’s get started.
What is the Pension Division in Canada?
In simpler terms, pension division is the scale of providing fair distribution of pension benefits when the divorce is ongoing. In Canada, married couples consider pensions as marital property. Usually, the pension is divided based on specific provincial laws. Legal services calculate the overall pension value by considering factors like service holding years, records of salary, and other benefit formulas.
Now, the spouses or couples have two primary options:
- Splitting Pension: Using this approach, couples can split the pension. They simply make the spouse who does not hold a pension a “limited member” entitled to a certain part of the pension according to percentage.
- Offsetting Pension: You can keep the pension intact just by compensating it with other properties. Limited spouses can designate beneficiaries to receive their share even if the main member is still working.
When Do You Require the Pension Valuation?
During divorce, pension valuation is essential even if spouses agree to avoid splitting the pension, as it helps establish the asset’s value. Pension valuation can be hard to complete, as it often requires an actuary to accurately calculate the value based on factors like—plan type, years of contributions, and salary history.
What are the terms of Spouse Entitlement to Pension After Divorce Canada?
The entitlement of ex-spouses to one’s dedicated share of the pension depends on the nature of their relationship. You might have known that there are two kinds of living relationships in Canada—Marital and Common-law. Here are the conditions for both:
Conditions for Married Spouses
- Entitled to a portion of the pension based on marriage duration and contributions made during that period.
Conditions for Common-law Spouses
- Entitled if they have already lived together for at least 2 years in a relationship similar to marriage.
- Must have a voluntary agreement recognizing each other’s pension rights.
How are Pension Decisions Made in Canada?
Yes. After a divorce or separation in a relationship, spouses have two primary options for handling their pension.
- The first option involves dividing the pension separately. Here, each spouse receives a part of the pension benefits.
- The second option is to keep the pension intact. But here, one spouse successfully retains the pension and compensates the other spouse with similar home or savings accounts.
What is the Payments Process of the Divided Pension?
The payment method for a perfectly divided pension in Canada depends on two factors— a) the specific type of pension plan and b) the agreement in decision between the divorcing spouses.
But there are some common methods:
Method 1: Limited Membership
The pension plan administrator will directly pay the non-member spouse their share of the pension benefits. The non-member spouse’s share can be transferred to a LIRA. This process allows them to invest the funds and withdraw them later, typically during retirement.
Method 2: Offset with Other Assets
The spouse who retains the pension may pay the other spouse a lump sum payment to compensate for their share of the pension. The spouse may transfer ownership of another asset, such as a property or investment, to the other spouse as compensation.
When the Separation After Pension Settlement Starts?
If a pension is already being received when a separation occurs, the chosen division method (splitting or offsetting) will be applicable to both spouse’s shares. Even after the pensioner’s death, the spouse, who is a non-member, can continue receiving their portion of the pension.
When the Death Before Pension Settlement Starts?
If the pensioner dies before receiving the pension, the non-member spouse typically inherits 50% of the accumulated pension benefits. If the non-member of the spouses passes away first, their estate or designated beneficiary has a limited time to claim their share of the pension.
Can Your Spouse Change Beneficiaries After Separation?
The beneficiaries after separation depend on the timing of the separation.
Separation Before the Retirement
Both spouses can change beneficiary designations. The spouse who is a non-member can name a beneficiary for their share.
Separation After the Retirement
If you change beneficiaries, it might be limited by the pension plan’s terms. Factors include the type of pension (e.g., single life while having a guaranteed duration), signed waivers, and multiple beneficiaries.
Final Words
After everything, it is clear that dividing pensions after a divorce in Canada can be complicated if you do not know the information we described.
Factors like the type of pension and provincial laws influence the process. Here, the CPP credits can be split equally, while other pensions may be divided based on specific rules. The best way is to discuss this with a legal professional who can help you navigate this process for a fair outcome.
FAQs
What is the duration period an ex-wife can claim pension years after divorce?
The ability of an ex-spouse to claim a pension after a divorce in Canada depends on various factors. Either provincial laws or the specific terms of the pension plan. Generally, an ex-spouse can claim their share of the pension for a significant period, often until their own death. The exact timeline can vary, so we recommend you consult with a legal professional.
How could my separated wife claim my pension after my divorce in Canada?
Yes, your ex-wife may be entitled to a part of your pension money even years after divorce. She can get this specific eligibility and the amount based on the length of your relationship and provincial laws.
How much of my pension will the legal process entitle to my wife in Canada?
In Canada, your ex-spouse’s claim to your pension depends on the duration of your relationship besides provincial laws. Generally, they can claim a certain portion, often up to half. It will only become the part you earned during the relationship.
