High-asset couples often have diverse holdings, some of which could be difficult or unwise to liquidate. When equalizing family property during a divorce, finding a source of sufficient cash could be challenging. However, couples may have enough wealth in their pensions and retirement funds to address this. Depending on their specific needs and considering relevant tax issues, a couple might split the pension fund, withdraw the cash necessary to equalize family property, or use other assets of the same value to meet equalization obligations.
When you are considering dividing pension and retirement benefits in an Ottawa high-asset divorce, seek capable legal representation from a local high net-worth divorce lawyer at The Riley Divorce & Family Law Firm. Our lawyers have a sophisticated understanding of these issues, prioritize responsiveness, and are available at any time to discuss matters of concern.
Each spouse’s pension and retirement savings are components of their family property. When you and your spouse make your net family property calculations, you must include the increase in value of pension and retirement benefits during the marriage. You do not need to divide a pension, but if one spouse keeps their pension, the other must receive its value in return.
The Ontario Pension Benefits Act s. 67.2(1) requires you to obtain a Family Law Valuation (FLV) of your pension from the fund administrator to determine the value you must use when calculating net family property. The FLV is often significantly different than the account balance shown on your pension statement. You should request the FLV as of your separation date to get an accurate valuation.
Some high-net-worth couples could balance their family property without disturbing their pensions, but many couples may need to take cash from a pension to make the equalization payment. Alternatively, the fund administrator could split the pension, providing as much as 50 percent of the FLV to the owner’s spouse. Appropriately funding each spouse’s retirement is a crucial consideration in high-net-worth divorces in Ottawa, and you should discuss your options and their implications with a diligent lawyer like Paul Riley before deciding how to handle pension funds.
The rules governing the division of pension benefits after a marriage breakdown changed in 2011. The earlier rules may apply if you and your spouse signed a domestic contract before 2012 that addresses the division of pension and retirement benefits. Consult our firm for detailed information about how the previous law could impact your situation.
Professionals, business owners, and other high-earning individuals often have Retirement Compensation Arrangements (RCAs). Only earnings up to a specified limit in the Income Tax Act are eligible for pension contributions; any excess earnings earmarked for retirement savings could go into an RCA and could be important to keep in mind for a high-asset divorce in Ottawa.
The spouses would seek an FLV from the plan’s administrator and use it to calculate the net family property, just as they would with other retirement savings. However, unlike other pension plans, a fund administrator cannot split an RCA. The spouse named on the account could request a payment of up to 50 percent of the RCA, but they would be responsible for passing that money on to the other spouse.
RCAs are not taxed until the named account holder receives pension payments. Before you decide to split an RCA, evaluating the tax implications with a knowledgeable lawyer like Paul Riley is essential.
Couples with considerable disposable income might also have registered retirement savings plans (RRSPs) that allow pretax contributions to accounts that could be accessed after retirement. People can deposit up to 18 percent of their previous year’s income in an RRSP, up to a limit that changes every year. Many high net-worth couples set up spousal RRSPs, in which the higher earning spouse receives a tax deduction for contributions they make to the lower earning spouse’s RRSP account.
RRSPs are considered family property and must be included in the determination of the equalization payment. However, they are pretax funds, so valuing them requires consideration of the taxes that will be due upon distribution. A spouse could put all or part of an RRSP toward an equalization payment but must roll the funds over into the other spouse’s RRSP to circumvent early withdrawal penalties and taxes.
Executives, athletes, entertainers, and others sometimes have deferred compensation arrangements that they might depend on to fund retirement. Evaluating how these promised future earnings should be treated when calculating net family property could be complex and might require input from specialists in financial planning and taxation. Paul Riley frequently works with high net-worth individuals and has a network of appropriately qualified experts to assist when deferred compensation, pension, and other creative retirement-funding schemes or benefits are an issue in a divorce in Ottawa.
You and your spouse likely put considerable thought into allocating assets for retirement, and a divorce could complicate your financial plans. You need expert assistance to ensure both of you can look forward to retiring comfortably, and Paul Riley could help you understand your options.
Contact The Riley Divorce & Family Law Firm at any time to discuss dividing pension and retirement benefits in an Ottawa high-asset divorce. Our attorneys will take the time to learn your needs and goals. Call today to get started.
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