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Relationship breakdown

How it affects your survivor benefits

Your spouse  (married or common-law) has certain rights and entitlements to your pension funds under pension legislation. Some of these entitlements arise in the case of a relationship breakdown and also upon your death. 

If you were to pass away before converting your pension funds to a retirement income, this would be considered a pre-retirement death. In all provinces, pension legislation states that your surviving spouse has first claim to your pension funds in the event of a pre-retirement death. 

In the event of a marriage/relationship breakdown, your spouse is also entitled to a share of your pension funds that you accumulated during the relationship. If you and your spouse agree to divide your pension funds, your spouse’s share is transferred out of the Plan. In this case, your spouse would no longer have any rights and entitlements to your remaining pension funds – including in the event of your pre-retirement death. 

Relationship breakdown.jpg

Your pension funds do not necessarily have to be divided in the event of a marriage breakdown. If this is the direction you and your spouse wish to go, then there needs to be a properly worded paragraph to that effect in your legal separation agreement. This would also prevent your spouse from having first claim to your pension funds if you died before starting a retirement income.

This is all fairly straight forward. However, there are a number of situations where the outcome is not so clear. 

Perhaps the most common situation is what happens if you pass away before you and your spouse complete a separation agreement? The answer depends on which pension legislation governs your pension funds. In some provinces, if you and your spouse are separated (still married but not divorced), but have been apart for more than a certain number of years, your spouse may not have first claim to your pension funds in the event of your pre-retirement death - but if you have not been separated for more than the number of years specified in the legislation, your spouse may still have first claim.

In other provinces, if there is no separation agreement, your spouse could still have first claim to your pension funds - even though you may have been separated for many years.

All provinces allow your spouse to waive his or her first claim to your pension funds by completing a waiver form in the event of your pre-retirement death. However, if your spouse completes a waiver, it does not mean he or she is also waiving the right to a division of your pension funds as a result of a marriage/relationship breakdown. 

Until your separation agreement is completed, there can be a lot of uncertainty regarding who might get your pension funds. As a result, if you experience a marriage/relationship breakdown, we strongly suggest that you and your spouse deal with your pension funds and other assets, and complete a legal separation agreement as soon as possible. 

Also - after your spouse’s entitlement to any of your pension funds is dealt with in your separation agreement - we recommend that you review the beneficiary designation of your pension funds. If your spouse is designated as beneficiary, he or she would still be the beneficiary to the funds remaining in your account until you designate someone else by completing a new Designation of Beneficiary form

If you experience a marriage/relationship breakdown, we strongly recommend that you contact us for a valuation of your pension funds accumulated during the relationship - your lawyer will want this information. We will also advise you of the requirements in order to divide or not divide your pension funds, depending on the direction you and your spouse want to go. We can also discuss the applicable survivor benefit implications based on the pension legislation that applies to your pension funds. 

Article from the fall 2016 TimeWise