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Pensions are often people’s most valuable asset, and are considered to be a matrimonial asset under the Family Law Act of Newfoundland and Labrador.
Defined benefit pensions are complex assets and can be difficult to deal with on divorce. There are two fundamental issues to consider: the mechanisms available to actually divide the pension and whether these mechanisms divide the pension fairly.
There are two primary mechanisms to divide a defined benefit pension: the actual pension payment can be split at retirement or a lump sum payment can be made from the pension plan to the non-member spouse. Depending on whether the pension is in pay, the law in Newfoundland and Labrador allows one or both of these options. Alternately, the member spouse can “buy-out” the non-member spouse and not divide the pension at all. In order for a “buy-out” to occur, a fair value needs to be assigned to the pension (so the correct amount of the buy-out can be established).
Fair Value for the Pension
Assigning a value to a defined benefit pension is not a straight forward task (click here for more information). There are many different ways to value a defined benefit pension. This leads to much confusion when couples are attempting to assign a value to a defined benefit pension on marriage breakdown. Be aware that the lump sum value of the pension that can be transferred from the plan to the non-member spouse is calculated in accordance with Newfoundland and Labrador’s Pension Benefits Act by assuming that the member terminates their membership in the pension plan at the date of application for the transfer (not at the date of separation). Consequently, if the member is far from retirement and not likely to terminate their membership in the plan, this value can understate the fair value of the pension. In this scenario, from an economic/actuarial perspective, the non-member spouse will likely be better off electing to become a limited member of the plan and receiving a deferred pension. In addition, if the parties want to ensure that a fair “buy-out” value is being assigned to the pension from an actuarial/economic perspective, in most cases a full actuarial valuation by an independent actuary is required.
Foreign pensions/pensions from other provinces
In the case of foreign pensions, it is likely that an actuarial valuation by an independent actuary would be required. Actuaries can assist clients by valuing pensions from other countries and providing the lump sum value of a foreign pension in Canadian dollars and ensure that the valuation is in accordance with the standards of practice of the Canadian Institute of Actuaries; this valuation will enable the couple to include the fair value of their foreign pension with the rest of their matrimonial assets.
Please read the information below and contact us if you have any questions.
- How are pensions in Newfoundland and Labrador divided on marriage breakdown?
- Supplemental pension plans are often overlooked
- Why should a defined benefit pension be valued by an actuary?
- Can we use the value of the pension provided by the pension plan administrator?
- Does the value of person’s pension assets need to be adjusted for income tax?
- Pension valuations frequently asked questions
- Information for RRSPs
- Information on our services and fees
Valuation of stock options and restricted stock units (RSUs)
Some employers provide stock option and/or restricted stock unit grants as part of an employee’s compensation. If stock options or restricted stock units have been granted during the period of marriage and have not been exercised at the date of separation, these options/units are generally considered matrimonial asset and may need to be valued. For more information, click the link below.
- Information on the valuation of stock options and restricted stock units
- Information on our services and fees
After a divorce there is often a need for regular support payments to be made from one spouse to the other (either child support or spousal support). Please click the link below for more information on support payments.
It is important to consider the long-term financial implications of a separation agreement for both spouses; it is important that both spouses understand the impact that any settlement proposal will have on their future cash flow and net worth. For example, if a spouse keeps the matrimonial home as part of the settlement it is important that they have adequate cash flow to maintain the home and pay for their living expenses. Please click on the link below for more details.