Many people find putting money away for the future challenging, but pensions and retirement benefit programs offer some security. For many families, a significant percentage of their wealth is invested in retirement funds. Even though one spouse owns a pension or retirement benefit plan, these accounts are family property. Dividing them in a divorce can be challenging and requires the guidance of a skilled property division lawyer.
The Riley Divorce & Family Law Firm could provide the assistance you require. With a sophisticated understanding of finance and tax law, our diligent lawyers could help with dividing pension and retirement benefits in a Toronto divorce in the most advantageous way possible.
Your contributions to your pension or retirement fund during the marriage, your spouse’s contributions, and the increase in value are components of your family property. The asset division rule in Ontario requires spouses to profit equally from the marriage, so pensions and retirement funds are subject to equalization. However, dividing a pension plan is unnecessary if other assets of equal value could be transferred to the other spouse.
According to the Ontario Pension Benefits Act s. 67.2(1), you must request a family law valuation (FLV) of your pension from the fund administrator. This calculation determines the amount of your contributions during the marriage plus the increase in value. The FLV is the amount you will use in your net family property calculation.
If you must make a payment to equalize net family property, the fund administrator can transfer a lump sum of up to 50 percent of the FLV to your spouse. If your spouse needs to make the equalization payment, you could receive up to 50 percent of their pension’s FLV in a lump sum. There are often tax implications to these transactions, so working with a Toronto lawyer is critical to ensure you minimize the tax cost of pension splitting in a divorce.
Canadian workers earn credits with the Canada Pension Plan (CPP) based on their employment salary. The more years they work and the higher their salary, the more credits they earn. The credits earned during a marriage are subject to equalization.
If you and your spouse were employed throughout the marriage and made similar salaries, no equalization might be required. However, if one of you took time off work to manage the home or raise children, or if one of you earned substantially more than the other, the differential could be considerable.
Married couples who divorce must split their credits, meaning the spouse with more credits must split the difference with the spouse with fewer credits. A lawyer in Toronto could help you make the split and calculate its impact on your retirement payments from CPP during a divorce.
Other vehicles exist to help people save for retirement, which are also subject to division upon divorce in Toronto. There are tax implications when dividing these plans, so working with a competent professional in taxation matters is essential. Many higher income people save extra money in Retirement Compensation Arrangements (RCA). They must be counted when determining net family property, and the administrator will provide a FLV to allow an accurate calculation. If the owner must access the funds to make an equalization payment, they can request the administrator pay out up to 50 percent, but the owner is responsible for paying the spouse their portion.
Registered retirement savings plans (RRSPs) are tax-deferred vehicles people use to save for retirement. When one spouse earns considerably more than the other, they can get a tax deduction by contributing to the other spouse’s RRSP account. Valuing RRSPs for family law requires calculating the taxes due when the funds are distributed.
Valuing pension and retirement benefits, arranging their distribution, and assessing the tax implications requires special knowledge and skill. Trying to manage these tasks without professional assistance could have negative financial repercussions.
The Riley Divorce & Family Law Firm has considerable expertise in dividing pension and retirement benefits in a Toronto divorce. The legal team is available at any time, so contact them now to discuss your situation with a knowledgeable professional.
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