Division of Pensions Upon Marriage Breakdown Recommendations Backgrounder – October 2008

///Division of Pensions Upon Marriage Breakdown Recommendations Backgrounder – October 2008
Division of Pensions Upon Marriage Breakdown Recommendations Backgrounder – October 20082017-03-03T18:30:50+00:00

When marriage breakdown occurs, often one of the most important and difficult issues facing the spouses is how to deal with a spouse’s pension. The LCO has made recommendations designed to make the law in this area less confusing.

The Family Law Act requires that pensions be included in the valuation and equalization of family property upon marriage breakdown. However, a pension is inherently difficult to value; estimating their value requires the making of numerous assumptions about future events. Moreover, under current Ontario law, rights under a pension plan generally cannot be transferred or cashed in. This can lead to great difficulty in cases where a spouse has a valuable pension but little else in the way of assets; he or she might have a large equalization obligation, but no practical way to settle it.

Ontario law in this area is widely acknowledged to be complex, confusing and fraught with difficulties, leading to unnecessary expense and administrative burdens. Lawyers, judges, pension plan administrators and separating couples have all pointed to a need for change in the law. This led the LCO to make the division of pensions upon marriage breakdown the subject of one of its first projects. In May of this year, a consultation paper was released, containing a brief review of the issues and an invitation to stakeholders and members of the public to make submissions. Over twenty such submissions were received, and LCO reflected carefully on these as it studied the issue. Now, the LCO has issued a report, setting out several recommendations for reform, along with supporting analysis. (Its full report will be released later this fall.)

Among the most important recommendations is that Ontario adopt as the primary settlement mechanism the Immediate Settlement Method (ISM). Where the spouse with the equalization obligation is a member of a pension plan and wishes to resort to his or her rights under the plan to satisfy the obligation, legislation would (if the recommendation were to be adopted) provide for a transfer out of the fund of the pension plan to the benefit of the other spouse. (Among other possible destinations, the transfer might be to a locked-in RRSP or, if the other spouse is also a member of a pension plan, the fund of that plan.) However, in certain cases, the LCO believes that separating spouses should be able to opt for the Deferred Settlement Method (DSM). Under the DSM, the spouse to whom the equalization obligation was owed would become a quasi-member of the member spouse’s pension plan and would become entitled to receive his or her own pension from the plan when the member retired (or on the member’s normal retirement date where the member postpones retirement beyond that date). The LCO is recommending that this option generally be available only where the member is within ten years of his or her normal retirement date and both spouses agree to it; however, it would also be available where the member was more than ten years from the normal retirement date if both the spouses and the pension plan administrator agree.

The LCO’s report of its final recommendations is available on its web site at www.lco-cdo.org

The LCO will issue its full final report on division of pensions on marital breakdown later this fall.

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