The Joy of An Ex - Pension Accounts

Copyright (c) 2012 Jackie Ramler

When your marriage breaks down, you will have to deal with sharing property (i.e. everything you and your spouse own). If you or your spouse has a pension, this may well be the most valuable asset to deal with and the most complicated and difficult to value. The most important consideration in this respect is to work with your lawyer and a qualified pension valuator in order to ensure that the pension is valued properly. If you try to proceed with anything other than a properly prepared pension valuation report, it could delay the whole process and cost you more money in the long run. A proper pension valuation report could save you many times the cost of having it prepared.

In Ontario, for example, the law requires that you and your spouse each prepare a list of your assets and liabilities as they were at the date of separation. This document is called the Net Family Property Statement. You must each include in this list the value of any pension that has been established for you by your employer. When the assets and liabilities for each of you have been established, it is then possible to determine which party has the higher value of net assets acquired during the marriage. That party must then transfer sufficient assets to the other so that both parties have assets of equal value acquired during the marriage. It is important that this equalization calculation be prepared properly. The value of any pension must be included in this calculation. Do not attempt to deal with the pension separately.

Your pension or your spouse's pension may be the most valuable asset of all. There have been many cases where the pension was not valued properly, and consequently, one of the parties lost thousands of dollars in the equalization of the assets.

Some people suggest that you can avoid the cost of having a valuation report prepared by obtaining a letter from your employer stating the value of your pension. This will only delay the process of settling your divorce and could cost you far more money in the long run. Have your lawyer work with a qualified pension valuator. Together they will do the best job for you. Working together, they should be able to settle the value of the pension without going through the expensive process of a court case. This could potentially save you thousands of dollars.

The valuation of a pension involves complicated calculations. There are many things that are considered in the calculations, each of which may affect the value substantially. The first step in the process is to provide your pension valuator with full information about your pension, your date of birth, date of marriage, and date of separation. You should also provide a signed letter authorizing the valuator to obtain information from your employer and your pension administrator. This allows the valuator to ensure that they are using the proper details in their calculations. If a valuator estimates some of the information, the values produced could be incorrect. Because of the way the values are calculated, a small error in estimating information can create a large error in the end values. That is why it is important that the report be based on confirmed information and not on estimates.

There are actually two types of pensions: defined contribution pensions and defined benefit pensions. In many cases the valuation process involves calculating the amount of pension benefit earned to the date of separation and calculating the present value of the payment while, at the same time, taking into consideration the possibility that the person may die at any time. The end value must then be reduced for the portion of the value earned before the marriage and for the appropriate income tax allowance. There are standards that must be followed in the process. These standards set out such things as the method for determining the discount rate(s) to use in the present value calculation.

A proper valuation report will often show three possible values. Each of these will be the value of the pension accumulated during the marriage; however each will assume a different age of retirement. The earlier the age of retirement that is assumed, the higher the value will be because payments will be received for a longer period of time.


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