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Divorce and Pensions

For many years it has been the law that pensions are property and are divisible in the breakdown of a marriage. However, many individuals going through a divorce forget about the pension, especially the C.P.P. (Canada Pension Plan).

Non-C.P.P. Pension Plans

With non-C.P.P. pension plans it is important for your lawyer to determine and know if there is one plan (the basic plan) or more than one plan (the basic plan and supplemental plans). Therefore, it is important to bring all pension plan statements to your lawyer, as well as a copy of the actual plan.

Your lawyer will have to review the plan in detail because pensions, while the same in principle, vary widely on how they are set up. The lawyer will be reviewing the plan to determine issues such as whether a spouse is a member spouse or a non-member spouse, what rights and obligations the member has, and what options and elections the member has.

Once your lawyer has reviewed the pension plan, he or she will have to review the appropriate legislation governing the pension plan and will likely want to discuss the plan with the pension administrator. Also, you may be advised to retain an accountant or an actuary to value the pension as the value paid into the pension is not the same thing as the market value of the pension. When dividing up a pension in Alberta, the law states that it is the market value of the pension that is the relevant value and normally market value is substantially greater than the dollar value paid into the plan.

At the end of the day, after the plan is valued, there are essentially 2 ways a pension can be divided. One party can buy-out the other party’s interest in the pension (a lump sum payment), or, the parties can divide the pension once the plan administrator starts to pay out the pension.   This second approach is often referred to as the “McAlister” formula, deriving its name from the case of McAlister v. McAlister.

In very general terms, the McAlister formula states that the non-member party is entitled to one-half of the value of the pension that was accumulated during the marriage of the parties. The plan administrator calculates this formula and can then divide the pension payment into 2 cheques and will send 1 cheque to the member and the other cheque to the member’s former spouse.

Often parties have to use the McAlister formula because it is not feasible for one party to buy the other party’s interest in the pension. The pension is often one of the largest assets owned by the parties.

C.P.P.

After a divorce, each party involved in the divorce is entitled to apply to C.P.P. to receive one-half of the credits built up by his or her spouse during the marriage. If both parties have built up C.P.P. credits during the marriage then both parties can apply for a division of the C.P.P. credits (although it is not necessary for both to apply).

To get the forms for the C.P.P. division you can just call C.P.P. and ask for the forms to be mailed to you.

It should be noted that even though the credits are divided upon application, you would not be able to utilize the credits until you otherwise qualify for C.P.P.

Knowing a little bit about pension plans and how they get divided should help you get the information together that your lawyer will need. It is important not to forget about the pension because it is often the largest asset accumulated by families, other than perhaps a house.

By Stacey M. Johnson