By Stephane A. MonPremier
Family Law and Real Estate Lawyer
Pursuant to section 4 of the Family Law Act, married parties’ Net Family Property (NFP) must be equalized upon the separation. Without getting into the intricacies of the equalization of NFP process, the value of each party’s assets, which were accumulated during the marriage, are tabulated. Their respective debts are then deducted from the value of their property. The resulting figure, after adjustments for exclusions, constitutes a party’s NFP.
By way of example, if Bob accumulated $100,000.00 in Canada Savings Bonds (CSBs) during the marriage, and had $10,000.00 of debt, his NFP would be $90,000.00. If his wife Lisa had $50,000.00 in Guaranteed Investment Certificates (GICs), no other assets, and no debt on the date of separation, her NFP would be $50,000.00. In this example, the difference between Bob and Lisa’s NFP $40,000.00. Bob would therefore have to make an equalization payment to Lisa of half of the difference between their respective NFPs. Bob would have to transfer $20,000.00 to Lisa as an equalization NFP payment.
Equalization of NFP can become more complex when a party’s main asset is his or her federal government pension. Unlike a GSB, GIC or Registered Retirement Savings Plan (RRSP), federal government pensions are not liquid.
How do we give recipient of the equalization of NFP what he, or she, is entitled to when the main asset is a federal pension?
In the example of Bob and Lisa’s separation, how would Bob have paid Lisa if his main asset was a $100,000.00 federal pension, instead of GICs?
Unbeknown to many, the Pension Benefits Division Act (PBDA) addresses such problems.
In situations of divorces, the PBDA authorizes the lump sum transfer of jp to 50% of the member’s pension, necessary to satisfy the equalization payment into the ex-spouse’s own pension plan, or locked-in-RRSP.
Thus, in Bob and Lisa’s situation, Bob could have satisfied his equalization of NFP payment to Lisa by transferring $20,000.00 of his pension into Lisa’s locked-in-RRSP. If Lisa is 55 years of age or older, she may be able to unlock up to 50% of her settlement by converting her locked-in-RRSP into a New Life Income Fund, and cashing it out. Alternatively, Lisa could convert her RRSP into a RRIF, LIRA or other form of life annuity fund, and receive a regular income. Lisa would be well advised to seek guidance from her lawyer or financial advisor in order to determine which options best suits her particular goals and needs.
At the time of the writing of this article, this lump sum scheme is only possible if the plan member’s pension is a federal pension. Ontario’s PBA does not currently authorize lump sum transfers of pension benefits to ex-spouses.
Bill 133 will soon authorize the lump sum transfer of up to 50% (or half) of provincial pensions in Ontario, for the purposes of lump sum equalizations of NFP. Bill 133 received Royal Assent on May 14, 2009. The amendments to the PBA contained in Bill 133 will come into force on a day to be named by proclamation of the Lieutenant Governor.
Please do not hesitate to contact me to discuss these issues further or to schedule a consultation.