Dividing pensions and other benefits after you separate

Some jobs just pay a salary, but sometimes employees get benefits, such as:

• medical and dental benefits
• life insurance
• group RRSPs
• car allowance
• sick leave
• disability benefits
• share ownership plans
• annual bonuses
• pensions

Executives might also get:

• stock options
• deferred profit sharing plans
• an additional pension entitlement

There are other types of employment benefits as well. For example:

• partners in accounting firms might get benefits when they leave the partnership that are similar to pension benefits, and
• financial advisors and stockbrokers might get compensation for the portfolio of customers they leave behind when they leave their firms.

These are often complicated and difficult to deal with. And they can make the tax side of things more complex as well.

The best idea is to see a lawyer who specializes in this area to find out how to deal with them.

But if you want to read about them, the Continuing Legal Education Society of BC's Family Law Agreements: Annotated precedents has lots of helpful information. You can get it online for $219.00 plus tax.

Under the BC Family Law Act, benefits in a pension plan are family property. This means that when you separate, you and your spouse are entitled to a share of the pension benefits that either of you built up while you were living together.

But dividing pension benefits can be complicated. Don't agree about dividing anything until you know what type of plan you or your spouse has and you've had legal advice. The plan administrator is the best person to ask about the plan. If you don't know who the plan administrator is (for your pension plan or your spouse's), ask the employer.

Send the plan administrator a Claim and Request for Information and Notice (Form P1) (PDF) to get the information you need, such as your most recent statement.

How do you divide the pension benefits?

The portion of the pension benefits divided between spouses is usually based on:

• when you started living together in a marriage-like relationship (you might call it a common-law relationship), or
• when you got married, and
• when you separated.

But you don't need to do it this way.

For example, if the spouse with the pension benefits earned part of them before your relationship began, that part isn't usually divided.

But you might decide to divide all of the benefits rather than just part of them if:

• you were together for a long time, and
• you're both retired or close to retirement.

You can make a written agreement about your decision. It should say what dates you're using to figure out what portion of the pension benefits you'll share. Send this agreement to the pension administrator so they know how the pension's going to be divided.

The pension administrator can often give you lots of information about:

• when benefits can be divided, and
• the options for receiving them.

See Questions and Answers About Pension Division on the Breakdown of a Relationship in British Columbia on the BC Law Institute website for lots more helpful information about pensions.

Here are some common situations that turn up when people separate and they want to sort out pension benefits.

The pension isn't being paid yet

Not all pension plans are the same, so the pension division rules depend on the type of pension plan you have.

The plan administrator should be able to tell you about the type of plan you have. The two main types of pension plans are:

• defined contribution plans, and
• defined benefit plans.

The pension's being paid

If one of you has retired and is getting a monthly pension, the other spouse is entitled to get a share of that monthly payment.

But you also need to think about things like:

• how to adjust the monthly sharing if any other payments were made before you sorted out the pension division, or
• if the person getting the pension's been paying child or spousal support, is that meant to be a share of the pension?

Pension payments are taxable, so that's something else to think about. You and the other person can be taxed separately for your separate shares of the benefits paid after the agreement is made. This can get complicated, so it's a good idea to speak to a lawyer about your options.

One spouse is a limited member

If someone's part of a pension plan, their ex-spouse is often entitled to join it as well (if this happens, they're called a limited member). You have to have fully separated before you can do this.

If the pension isn't being paid yet, usually the limited member can choose between getting their share in:

• a single payment transfer from the pension plan to another specific type of plan (such as a locked-in RRSP), or
• a separate lifetime pension.

The limited member's share has to work exactly like the member's pension, so they only have these options when the plan member's eligible to start collecting the pension. That's usually at age 55. But in some jobs the rules are different. For example, pilots, police officers, and firefighters are often allowed to start collecting a pension at age 50.

If the pension's already being paid, the limited member starts getting a share of the monthly payments after they become a limited member.

Immediate transfer: Defined contribution plan

Under a defined contribution plan, the employer, and sometimes the plan member, has paid into an investment account. The pension benefits come from returns on the investments. When the member retires, they usually have three choices:

• use the funds to buy an annuity
• keep the funds in the account and take money out as they need it
• transfer the funds to a registered plan and take money out of the registered plan as they need it

If the benefits stay in the original account, the other spouse (the one who's not a member) can take their share right away. The pension plan administrator will transfer the whole of the other spouse's share from the plan to a plan in that spouse's name (such as a locked-in RRSP).

If you both have pension benefits

If both of you have pension benefits, you might want to divide only the difference between the two plans (this is called setting off an entitlement).

If you keep more of your own pension benefits:

• you'll have more flexibility for your own retirement planning because you're only dealing with your own pension, and
• the overall value of the benefits might be better protected.

If you and your spouse decide to divide your pension benefits:

• you might be able to save money, or
• you might get more flexibility for your retirement planning.

It's good idea to speak to a lawyer who specializes in this before you make any decisions.

If you're a plan member, when you retire you can choose between different pension options and different types of survivor benefits.

Under BC law, a member of a pension plan who has a spouse has to take a pension that pays a survivor benefit to their spouse if the plan member dies first.

If you have a pension plan and you separate, you might want the survivor benefits to go to someone other than your ex-spouse. But in BC, you can't just transfer survivor benefits to someone else.

Your ex-spouse could agree to hold the benefits in trust and pay them to someone else, but that's fairly unlikely to happen. They'd have to fill out a Waiver of Survivor Benefits After Pension Commencement (Form P5) to waive (give up) their rights to the survivor benefits.

Some plans might have other options so it’s helpful to review your plan before you make any decisions.

See Questions and Answers About Pension Division on the Breakdown of a Relationship in British Columbia on the BC Law Institute website for lots more helpful information about survivor benefits.

If you sign an agreement or have a court order to divide pension benefits, you have to send the agreement or order to the pension plan administrator with certain forms:

• Request for Designation as Limited Member (Form P2). Fill in this form to make the non-member spouse a limited member of the plan. (See One spouse is a limited member.)
• Request for Transfer from Defined Contribution Account (Form P3). Fill in this form to let the non-member spouse apply for a transfer of the share of benefits in a defined contribution account. (See Immediate transfer: Defined contribution plan.)
• Request by Limited Member for Transfer or Separate Pension (Form P4). Fill in this form to let a limited member choose whether they get their share of a pension as a lump sum transfer or a separate pension.

See Questions and Answers About Pension Division on the Breakdown of a Relationship in British Columbia on the BC Law Institute website for lots more helpful information about forms.

If you separate or get a divorce, any benefits under the Canada Pension Plan (CPP) can be divided after one year.

You each get half of all CPP contributions you both made in each year of your relationship. This is called credit splitting.

See the form ISP1901 on the Service Canada website for an application kit and information sheet to do this. After you or your spouse apply, the government divides your yearly contributions to CPP between you on a year-by-year basis (from the year you began living together to the year before you separated).

You don't need an agreement or court order to divide your CPP credits. But you'll need to make an agreement if you decide not to divide them.

See Divorced or separated: Splitting Canada Pension Plan credits for more detail about this.

But you might not want to credit split

CPP credit splitting often works fairly, but sometimes it can bring down the overall value of a pension. That means one spouse loses more than the other spouse gains.

Speak to an expert or contact Service Canada about whether credit splitting, or credit splitting right away, makes sense for you if:

• an older spouse has paid more into CPP than the other spouse,
• one spouse is receiving disability benefits, or
• one spouse already receives CPP, but it will be some time before the other will be eligible to receive it.

The federal government pays Old Age Security benefits (OAS) to people who are 65 or older and are:

• Canadian citizens or permanent residents, and
• have lived in Canada for at least 10 years since the age of 18.

OAS payments are based on how long you've lived in Canada. It's possible to get them if you live outside of Canada now and you meet the age and residency requirements.

There's no way to get the government to divide OAS payments between separated spouses. But sometimes the amount of OAS each spouse gets is taken into account when the court's working out how much one spouse should pay another in spousal or child support payments.

If you and your spouse separate, your registered savings and income plans (RRSPs, RRIFs, and LIFs) can be divided between you.

These plans let you defer (put off) paying taxes on your contributions and investment returns until you take money out of them. The federal Income Tax Act lets spouses divide the benefits in these plans when they separate.

The spouse who gets a share can:

• get their share transferred to a registered savings or income plan, and
• defer the taxes until they take money out of the plan.

Once you have an agreement dividing benefits in a registered savings or income plan:

1. The person entitled to receive the share goes to their bank or credit union to set up a registered plan to receive the transfer.
2. The bank or credit union gives them a completed Income Tax Act Form (T2220).
3. Each spouse fills out part of this form and then they send it to the bank or credit union that holds the plan being divided so it can transfer the share.