Division of Pensions Upon Marriage Breakdown Final Report Backgrounder

Division of Pensions Upon Marriage Breakdown Final Report Backgrounder2017-03-03T18:30:50+00:00

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The Law Commission of Ontario (LCO) released its Final Report on the division of pensions on marriage breakdown on December 22, 2008 concluding work on a project that began in March of 2008.

Launched on September 7, 2007, the LCO has a mandate to recommend law reform measures to increase the legal system’s relevance, effectiveness and accessibility; to clarify and simplify the law; consider technology as a means to enhance access to justice; stimulate critical debate about law and promote scholarly legal research.

Bill 133, which received first reading in November of 2008, and which included amendments to Ontario’s Family Law Act and the Pensions Benefits Act relating to pension division, incorporates many recommendations from LCO’s report on the division of pensions on marriage breakdown.

Although the Family Law Act requires that pensions be included in the valuation and division of family property, a pension is inherently difficult to value and divide. The various settlement mechanisms for determining value have been fraught with difficulties. Ontario law in this area has long been widely acknowledged to be complex, confusing and problematic, leading to unnecessary stress and expense for the parties, as well as substantial burdens for pension plan administrators.

The need for reform in this area was obvious and the LCO took the following steps:

  • In May of 2008 issued a Consultation Paper setting out the problems and issues and asking for submissions on how the law might be changed; 
  • Undertook research and reviewed submissions from over twenty organizations and individuals;
  • Released recommendations in early October. 

Among the most important of the LCO recommendations is the establishment of the “Immediate Settlement Method” (ISM) as a means of dividing a pension to resolve family property issues on marriage breakdown. This requires the valuation of a pension at the date of a couple’s separation and a transfer out of the pension fund for the benefit of the spouse to whom an equalization amount is owed.

Other key recommendations include:

  • continuing to treat rights under a pension plan as family property;
  • amending the Family Law Act to ensure that pension rights that have not yet vested are also treated as family property;
  • specifying use of the “hybrid” valuation method for determining the value of rights under a  defined benefit pension plan;
  • availability of the “Deferred Settlement Method” (DSM) — division of pension upon pension plan member’s retirement — as an alternative option to the ISM under certain conditions.

The final report:

  • includes primers on pensions and Ontario family property law;
  • discusses choice of pension valuation methods and related issues:
  • considers problems arising when a spouse’s only asset of significant value is a pension;
  • refers to the double dipping problem;
  • examines whether pension division has gender implications; and
  • critically analyses the arguments in favour of both the ISM and the DSM.