The short answer
Pensions earned during the relationship are shared property in Canada and the US. Defined contribution plans are divided by transferring a share of the balance. Defined benefit plans need a formal valuation, then are divided by a transfer from the plan or offset against other assets. In Canada, CPP credits earned during the relationship are split on application. In the US, workplace plans are divided by a court order called a QDRO.
A 45-year-old teacher with 20 years in a defined benefit plan may hold a pension worth more than $500,000 in present-value terms. It doesn't show up on a bank statement, it can't be spent today, and it is easy to forget when everyone is focused on the house. It should not be. In many long marriages the pension is the largest single asset.
The two kinds of pension
Defined contribution plans, including group RRSPs and RPPs in Canada and 401(k)s and 403(b)s in the US, have an account balance. What you see is what it is worth. Division is relatively simple: a portion of the balance is transferred to the other spouse's registered account.
Defined benefit plans promise a monthly amount at retirement based on salary and years of service. There is no balance, only a promise. Valuing that promise today requires actuarial assumptions about life expectancy, retirement age and interest rates, and the resulting number can be surprisingly large.
Canada
Canada Pension Plan credits
CPP contributions made by both spouses during the years you lived together are added up and split equally between you. This is called a credit split or division of unadjusted pensionable earnings. It applies to married spouses on divorce or after 12 months of separation, and to common-law partners after 12 months of separation. Either spouse can apply to Service Canada; the other's consent is not required. In some provinces spouses can waive the split in a separation agreement, but Ontario does not allow a waiver except in narrow circumstances. Quebec has its own plan with parallel rules.
The split can be small for couples with similar earnings and significant when one spouse earned much more or one spent years out of the workforce. It is free to apply and there is no downside to asking Service Canada for an estimate.
Workplace pensions
Each province regulates pension division differently, and federally regulated plans (banks, airlines, telecoms, the public service) follow federal rules. In Ontario, the plan administrator produces a Family Law Value on request using prescribed forms; the pension is included in the member's net family property; and up to 50 percent of the Family Law Value can be transferred to the non-member spouse's locked-in account or paid as a share of the pension in payment. Other provinces have similar but not identical processes, and some allow division only at retirement.
Two practical points. First, the transfer from the plan is usually tax-deferred and locked in, meaning the receiving spouse cannot cash it out. Second, the member spouse may prefer to keep the whole pension and give up other assets. Both are legitimate. The mistake is not valuing it at all.
RRSPs and TFSAs
RRSPs can be transferred between separating spouses without tax using CRA form T2220. TFSAs can be transferred directly without affecting contribution room. Both count as property and both are commonly used to balance a settlement.
United States
QDROs
A Qualified Domestic Relations Order is a court order that directs a private employer's plan to pay part of a participant's benefit to a former spouse. Without a QDRO, the plan cannot legally pay the non-participant, and the divorce decree alone is not enough. The order must meet the plan's requirements, so most lawyers use a QDRO specialist and get the plan administrator to pre-approve the draft. The transfer is not taxable when it goes into the former spouse's own retirement account.
Government and military plans use different orders (COAPs for federal employees, military pension division orders under the USFSPA), each with its own rules.
Social Security
Social Security is not divided in divorce. Instead, a former spouse who was married for at least ten years can claim benefits on the ex-spouse's record without reducing the ex's benefit. If you are close to the ten-year mark, timing your divorce decree can matter.
IRAs
IRAs are divided by the divorce decree itself, not a QDRO, and the transfer is tax-free if it is "incident to divorce" and done as a direct transfer, not a withdrawal.
The choice: transfer or offset
In both countries you can usually either split the pension itself or leave it intact and compensate with other assets. Consider:
- Liquidity. Pension money is locked. If you need cash for a home, taking the house equity instead may serve you better.
- Risk. A defined benefit pension is guaranteed income for life. Investments are not.
- Tax. Pension and RRSP money is pre-tax; house equity is largely after-tax. A dollar of pension is not worth a dollar of home equity. Most agreements discount registered assets for notional tax. Get advice on the rate.
- Survivor benefits. If the pension stays with the member, the ex-spouse usually loses survivor benefits unless the agreement or order preserves them.
What to gather
- Most recent annual pension statement for every plan, for both spouses
- Date of marriage or cohabitation and date of separation
- Plan booklet or summary plan description
- Recent RRSP, TFSA, 401(k), IRA statements
- For Canadian workplace plans, the provincial or federal family law valuation forms
Common questions
Do we have to split the CPP credits?
In most of Canada either spouse can apply and it will be done. Ontario does not allow spouses to contract out of it in an agreement except in limited circumstances. Check the rule in your province.
What does a pension valuation cost?
In Ontario the plan administrator provides the Family Law Value for a modest fee set by regulation. Actuarial valuations elsewhere typically cost several hundred to a few thousand dollars.
Can I take my share of the pension in cash?
Usually not. Transfers from workplace pensions go into locked-in accounts in Canada, and QDRO transfers in the US are taxable if taken as cash rather than rolled into a retirement account.
What if my spouse is already retired and receiving the pension?
The pension in payment can still be divided, typically as a share of each monthly payment, subject to your jurisdiction's rules.
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Start the free assessmentThis guide is legal information, not legal advice, and it is written for a general audience across Canada and the United States. Family law is provincial and state-based and changes over time. Before you rely on anything here for your own situation, confirm it with a qualified family lawyer in your province or state. FairWell can connect you with one through the professional directory.