Divorce or separation can have certain implications for your pension plans and retirement savings. It's important to understand what happens to your pensions in these situations, as the rules can vary depending on factors such as the type of pension, the province you reside in, and your marital status. In this article, we’ll provide an overview of what you need to know about the impact of divorce or separationOpens a new website in a new window on your pension plans and the potential variations in rules across Canada.
Types of pension plans and how they’re affected provincially
Each type of pension plan operates under distinct rules and regulations provincially that dictate how they’re affected during divorce or separation proceedings. Understanding the various pension plans can help individuals navigate the division process and ensure a fair and equitable settlement.
Government pension plans
Government pension plans serve as an essential means of retirement income for many Canadians. Let’s take a closer look at a few of them and how they’re affected by divorce or separation.
Canada Pension Plan (CPP)
The CPP is a contributory, earnings-related pension plan available to most Canadian workers. In the event of divorce or separation, the CPP money earned during the marriage or common-law relationship is considered a joint asset. The division of this money is governed by provincial or territorial family law legislation.
It’s important to note that not all provinces have specific rules for CPP division. For instance, in Ontario and British Columbia, the money can be divided equally between spouses or allocated based on other factors determined by the court like duration of the relationship, date of separation, and eligibility and entitlement.
Quebec Pension Plan (QPP)
The QPP functions similarly to the CPP but applies exclusively to Quebec residents. Like the CPP, QPP money earned during the marriage or common-law relationship may be subject to division upon divorce or separation. The rules and procedures for dividing QPP money align with Quebec's family law regulations.
Old Age Security (OAS)
OAS is a government pension program in Canada that provides a monthly payment to eligible individuals aged 65 and older. It’s a key component of Canada's retirement income system, aiming to provide a basic level of income support for seniors. OAS benefits are considered personal entitlements based on an individual's eligibility and contributions to the program. Therefore, they’re not subject to division or sharing between spouses or common-law partners.
Guaranteed Income Supplement (GIS)
The GIS is a government income supplement program in Canada that provides additional financial assistance to low-income seniors. It’s 1 component of the broader Old Age Security (OAS) program and is designed to help seniors with little or no other income to meet their basic needs. In the context of divorce or separation, the division of GIS benefits is not directly governed by provincial family law legislation.
GIS benefits are considered individual entitlements based on the eligibility and income of each individual spouse. As a result, GIS benefits are typically not subject to division or sharing between spouses or common-law partners.
Employment pension plans
Employment pension plans offer additional retirement benefits beyond government plans. These plans typically fall into 2 categories:
Defined penefit (DB) plans
DB plans provide a predetermined retirement benefit based on factors such as years of service and earnings. In the case of divorce or separation, the non-member spouse may be entitled to a portion of the pension's value accumulated during the marriage. The division of DB pension assets is determined by provincial family law legislation.
The approach to dividing these assets may vary across provinces. Some provinces consider DB pension assets as family property subject to division, while others may employ different methods to allocate the pension's value fairly.
Defined contribution (DC) plans
DC plans, such as registered pension plans (RPPs) or group registered retirement savings plans (RRSPs), accumulate contributions made by both the employee and the employer. During a divorce or separation, the value of the contributions made to the DC plan during the marriage may be subject to division.
Each province has its own legislation outlining the rules and methods for dividing DC pension assets like valuation, separation agreements and court orders, and pension division orders. It’s crucial to refer to the specific regulations in your province to understand how the division process unfolds. A family lawyer or advisor would be a great resource to contact.
Retirement savings plans
Retirement savings plans include various tax-advantaged accounts intended to help Canadians save for retirement. Below, we’ll touch on a few of these savings' plans.
Registered retirement savings plans (RRSP) and spousal RRSPs
During a divorce in Canada, assets acquired during the marriage, including RRSPs, may be subject to division between spouses. RRSPs are considered matrimonial property in most provinces, which means they can be divided upon separation or divorce. The specific rules regarding the division of RRSPs can vary by province or territory.
In the case of a regular RRSP, contributions made by the plan holder using their own income are generally not subject to division. However, any growth or increase in the value of the RRSP during the marriage may be subject to division. Additionally, RRSPs are often used to settle equalization payments between spouses on marriage breakdowns even where there is no direct entitlement.
Spousal RRSPs are unique because they are funded by one spouse but are in the name of the other spouse. The purpose of a spousal RRSP is to provide retirement income to the lower-income spouse. When it comes to dividing spousal RRSPs during a divorce, they are typically treated differently from regular RRSPs.
Tax-free savings accounts (TFSAs)
TFSAs allow individuals to save and invest money without paying taxes on the income generated. Contributions made to a TFSA during the marriage or common-law relationship are generally not subject to division. In a divorce or separation, each spouse typically retains the right to their individual TFSA assets accumulated during the marriage.
Registered retirement income fund (RRIF)
An RRIF is a retirement income vehicle available to Canadians who have reached the age of 71. It’s created by converting registered retirement savings plan (RRSP) assets into a RRIF, which provides a regular stream of income during retirement. In the context of divorce or separation, RRIFs are considered part of the overall property division process.
The rules and regulations regarding the division of RRIFs can vary by province or territory in Canada. Overall, it’s crucial to seek professional advice pre-divorce from a family lawyer or advisor who specializes in family law. Understanding the implications and options for dividing your pension can go a long way to secure your financial future post-divorce.