It is a familiar scenario when people separate, and you may be wondering the same thing. Why do I have to split my pension with my ex-spouse? Is it mandatory?
We are here to help you understand how this works, and how mediation can help you keep your pension credit.
Most people do not want to share their pension. They have worked long and hard to earn it and the last person they want to share it with is the person they are separating from.
In Ontario, and in fact, many other provinces, when a couple is divorcing, each person must calculate their net worth. This is done by adding up the value of your assets (such as the matrimonial home) and the value of your liabilities (such as your mortgage). The liabilities are then subtracted from the assets to arrive at the net worth. The person with the highest net worth then pays half the difference to the other person so that each party ends up with the same net worth. This is called equalization of family assets.
Your pension is an asset the is used to calculate your net worth, for the purposes of equalization.
As part of an equalization payment, the Court can order a spouse to immediately transfer a lump sum out of his or her pension plan to the other spouse.
For married couples, pension splitting is mandatory, unless the spouses have an agreement that provides otherwise.
For common law couples, pension splitting is not mandatory, however each spouse can apply to their pension credits split. Keep in mind that the application can only be made after the parties have been separated for one year but must be made within four years of separation.
How can mediation help?
In mediation, there is nobody who can order you to pay your spouse a portion of your pension, in fact, you can hold on to your entire pension. Why is that? Quite simply, in mediation, you hold the cards, you make the final decision. Mediation is a non-adversarial process, less stressful process. The parties work to negotiate and settle on their own terms, and they do it at half the cost of retaining a lawyer and filing a Court application.