New divorce rules for splitting pension assets
When a couple is divorcing, things are generally split down the middle. The person with the more substantial net worth generally pays half the difference to the other person. This is known as equalization of family assets, the largest of which, other than the family home, is often a pension plan.
Pension plans are the trickiest assets to divide, however, both because they’re not valued in terms of a current balance the way RRSP accounts are, and because they generally can't be liquidated prior to retirement age.
This can lead to more conflict since most parties typically want to settle all of their marital property issues as soon as possible so they can simply get on with their lives.
But all this is finally changing.
Earlier this month, the Ontario government released draft regulations regarding the division of pension assets when marriages fail.
The new rules have disposed of “if-and-when” arrangements that, in the past, meant that non-member spouses couldn’t get their hands on the money until their husband of wife left their job or retired.
The draft regulations require the immediate settlement of a claim by a separated spouse for both active and inactive plan members.
That means it will be possible to apply for an immediate transfer of up to 50% of the pension’s value to another pension plan or RRSP. The money can also be left in the member’s pension plan.
The new rules also make plan administrators responsible for the valuation of pension assets for family law purposes as well as ensuring that any settlements are completed according to the legislation.
That means those who separate after retirement won’t get the “sorry, not really our problem” response and will instead be able to apply to the administrator for an immediate division of the pension.
You can review the draft regulations here and can comment on these regulations until April.
Have you had trouble getting a fair split during a divorce? Would this rule change have helped?
By Gordon Powers, MSN Money