So many people don’t think of their pension as being an asset and unfortunately quite often, they also don’t realize its true value until it’s too late.
A lot of my clients who have pensions, don’t know the type of pension they have and often have no idea of what they are worth.
Most work Pensions Plans I deal with fall into 2 categories; The most traditional one and the one people usually care the most about is:
1.The Defined Benefit Pension Plan:
This is a company plan where the employer promises to pay the retiree a specific monthly benefit on retirement for the rest of his or her life. The monthly benefit amount is calculated using a formula that considers the employee’s earnings history, the number of years of service and the age of the employee. Air Canada, the Federal Government, Teachers, Police Associations are examples of employees that often have DB pensions.
The other pension plan, which is the one most employers will offer these days as the investment risk is shifted to the employees, is:
2. The Defined Contribution Plan:
This is where the employer, employee or both make contributions on a regular basis.[1] Individual accounts are set up for participants and benefits are based on the amounts credited to these accounts (through employee contributions and, if applicable, employer contributions) plus any investment earnings on the money in the account. In defined contribution plans, future benefits fluctuate on the basis of investment earnings. (Wikipedia)
I have a lot of clients that think these 2 types of pensions are similar in the sense that they believe the value of the Pension is based on the Pension Statement they get every year. But the reality is that contrary to the DC pension statement which reflects the actual value of your pension, the DB Pension Statement only represents a fraction of the total value of your pension. I have clients that thought their pension was worth $75,000 until they had a valuation done by their Pension Provider and they discovered that it was worth $350,000.
The only way to get the true value of your DB pension is to fill out an “Application for Family Law Value” and send it to your Plan Administrator who will then provide you with your “Statement of Family Law Valuation”. You also have the option for a small fee to get an “Estimated Family law value” through an actuary. These are 2 ways I personally know to obtain the value of the pension assets you accumulated during your spousal relationship, there may be others.
Not my Pension!!!
When a couple separates and is ending their marriage, their financial future is a huge stress and for so many people a Defined Benefit Pension is 🥇 GOLD , it’s the one thing they thought they could count on, as it always represented a guaranteed income for their whole retirement life. Having worked all their life and having made so many sacrifices often at the expense of their health, their friends, and often their relationships with their partners or children, you can imagine that having to share this safety net with their future ex-spouse is quite devastating and not part of their plan.
Here are the 2 most frequent questions I get regarding Pensions:
1- Do I really have to give half my pension to my ex?
Yes, your ex-spouse is entitled to 50% of the value of the pension you accumulated during the years of marriage. VALUE being the key word here. A lot of my clients think that they need to split their pension in half right now and that their spouse will get the amount in cash or that they will automatically lose half their pension when they retire. What they don’t realize is that pensions are like any other asset;
· They can be traded off for something else, “you keep the house I keep my pension”.
· They can be excluded in the calculation of your Net Family Property, as long as their true value has been disclosed (Full financial disclosure)
· Their value can be considered in the calculation of their Net Family Property as part of their assets but depending on their debts they may not represent that much in the end. If for example, you have a $350,000 pension but you owe a mortgage of $400,000 your Net Family Property would be -$50,000 which means the value of your pension is not as significant here.
2- Why do I need to share my pension at all, I worked hard for it, I am the one that did those crazy hours, worked 7 days a week….
First of all, your pension in the eyes of the Law is considered to be a marital asset, just like a bank account where you accumulated savings during your marriage or investments that increased in value. Secondly, it is assumed that while you were doing all these crazy hours, your partner or spouse was taking care of the children, your home, paying the bills, making the meals, running all the family errands, going to school PTAs, driving the children around etc…This was a partnership you both agreed on and therefore you should both share in the profits.
Now this is a very simplistic way of looking at things and there are other factors to consider, your partner’s assets and debts, your joint assets and debts, your pre-marital assets, excluded property etc. But what I’m trying to get at is that, before you start panicking, before the exchanges with your ex-spouse escalate into high conflicts and points of no return, you should contact a mediator who can provide you a much more detailed picture of your respective financial situations, what your rights are, what your options are and what the Family Law in Ontario stipulates regarding Pensions.
Now, I still believe that there is a way to avoid all this and to secure a happy retirement, the best investment you could make is to never stop working on your marriage.
For more details or if you need any help with your Separation and/or Divorce please contact us at helenerivard@mediate2agree.ca or check our website www.mediate2agree.ca
Mediation is always the best solution!
