The Family Law Act of Ontario provides a method for married couples who separate or divorce to equalize their assets. The spouse whose Net Family Property is greater than the other spouse must pay that spouse one- half the difference so that each may leave the marriage with an equal share of the value of their collective assets.

The process of equalization has been in place since the Act was first implemented in 1986. However some assets, such as pensions, are difficult or impossible to divide. Often the only way for a separating spouse to receive a share of their former spouse's pension was to either take a percentage of the monthly benefits, or to take a lump sum in cash. Parties sometimes also had to engage in a little "horse-trading" (e.g. "I'll keep the house and you keep the pension") which satisfied neither party.

This process also meant a heavy burden upon the payor spouse, particularly if there were little or no resources to satisfy the lump sum equalization payment. Extended litigation and costs stemming from conflicting actuarial reports on the value of the pension increased the burden.

Reform of the law was needed and as of January 01, 2012 it is now possible for separating spouses of plan members to receive an immediate payment of their share of the pension assets, either as a lump sum transfer to a Locked in Savings Account (LIRA) or a division of monthly pension payments.

The new rules apply only to pensions governed by Ontario provincial rules. Pensions operating throughout Canada, such as federal public service pensions or pensions provided to employees of federally regulated companies (e.g. banks, airlines) are not subject to the new scheme of division. Federal public service pensions may be divided under the Pension Benefits Division Act (Canada).

The best known large provincial pensions are HOOPP (hospital), OMERS (municipal) and Ontario Teachers' Pension Plan. These are all subject to the new rules.

The changes in how provincially regulated pensions are dealt with are as follows:

Valuation

1. Pensions will no longer be valued by a third party actuary.
2. Couples will now apply directly to the plan administrator to calculate the value.
3. A form is provided to complete and submit to the plan administrator.
4. A fee may be charged by the administrator for this process.
5. Pensions will now be valued in accordance with a prescribed formula.

Transfer

The plan administrator will then proceed with the transfer of the applicable amount to the recipient former spouse.

Going Forward

The new rules do not act retroactively. If spouses have entered into a separation agreement, or are subject to a court order dated on or before December 31, 2011, the new rules do not apply to them.

The changes are a welcome addition to the tools available to settle pension issues between divorcing couples. By following a prescribed formula to value pensions there is less chance for dispute or need to revise the calculation in future. This should make it easier to conclude property settlements and avoid litigation. Good reforms for Ontarians who have to endure the trauma of separation and divorce.

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