An Introduction to the Division of Pension Benefits on Marriage Breakdown in Ontario - Part I

Written By Mariette P.H. Matos

The long-awaited reform of the family law provisions of the Ontario Pension Benefits Act (PBA) came into effect on January 1, 2012, and the passage of time has brought to light the challenges involving the new pension division rules. In a Six-Part Pension Division Series, for those who are required to use them, Bennett Jones will simplify Ontario's pension division rules.

Part I will serve as an introduction to the rules by describing when they apply, clarifying their potential retroactive application and summarizing the regulatory forms that must be implemented as part of the process of dividing a member's pension benefit on marriage breakdown.

Bill 133, the Family Statute Law Amendment Act, passed on May 14, 2009, together with the Family Law Matters Ontario Regulation 287/11, which came into force on January 1, 2012, marked the end of the “if and when” system of dividing a member's pension benefit on marriage breakdown in Ontario. Under the "if and when" system, a former spouse of a plan member had to wait until the member terminated employment or plan membership, retired, died, or reached normal retirement date under the pension plan, whichever event occurred first, prior to being able to access a share of the member's pension benefit.

Under the new pension division reform system effective January 1, 2012, a former spouse of a plan member is entitled to receive an immediate payment of his or her share of the member's pension benefit as a lump sum transfer or as a division of the member's monthly pension payments. If the member was not in receipt of monthly pension payments on the family law valuation date (FLVD) (generally the parties' separation date), then the former spouse is entitled to a lump sum transfer of the member's pension benefit. A lump sum transfer is generally not a cash payment but is a transfer to a former spouse's locked-in retirement account (LIRA) or to another pension plan for the former spouse. If, on the other hand, the member was in receipt of monthly pension payments on the FLVD, then the former spouse is instead entitled to a division of those monthly pension payments. Therefore, while the new rules can provide parties with the flexibility to access pension funds for the purposes of assisting with property equalization on marriage breakdown, this access to pension funds is typically on a locked-in basis or in the form of monthly pension payments and not a lump sum cash payment.

Moreover, under the new rules, a division of a member's pension benefit is neither automatic nor mandatory and can only be implemented if the division is provided for in a domestic contract, court order or family arbitration award.

When do the New Rules Apply?

Settlement Instrument Dated On Or After January 1, 2012

If a settlement instrument (i.e., a court order, domestic contract or family arbitration award) is dated on or after January 1, 2012, then the pension division rules effective January 1, 2012 always apply. (Note that a family arbitration award is only an acceptable form of settlement instrument under the PBA for purposes of dividing a member's pension benefit on and after January 1, 2012.)

Settlement Instrument Dated Before January 1, 2012

If a settlement instrument is dated before January 1, 2012, then the new or the old rules apply depending on the type of settlement instrument and its content. Yes, contrary to popular belief, based on the terms of both the PBA and the Ontario Family Law Act (FLA), the new pension division rules can have a retroactive application. Here's a quick test for determining which rules apply:

If a Settlement Instrument is dated before January 1, 2012, then the new rules apply unless:
 
- the Settlement Instrument requires an equalization payment to be made*
or -  Domestic Contract provides for a division of a pension benefit*

* A settlement instrument requires that an equalization payment be made if its terms require one spouse to pay to the other spouse an equalization payment in accordance with Section 5(1) of the FLA. A domestic contract (or more generally, a settlement instrument) provides for a division of a pension benefit if it specifies a former spouse's entitlement to a member's pension benefit as either a proportion of, or a specified amount of, a member's pension benefit.

Chart Summarizing Which Rules Apply

A chart summarizing which rules apply in the case of a settlement instrument dated before 2012 and after 2012, as well as based on different settlement instrument terms, is set out below. Whether the new or the old rules apply depends on the type of settlement instrument the parties have, the date the settlement instrument was made and the specific terms of the settlement instrument. Please see the chart below.

Terms	Pre-2012 Court Order	Pre-2012 Domestic Contract
Divides Pension	New	Old
Equalization Payment	Old	Old
Divides Pension & Equalization Payment	Old	Old
Does not Divide Pension & No Equalization Payment	New	New
Terms	Post-2011 Court Order Domestic Contract Family Arbitration Award
Any Terms	New

The FSCO Family Law Forms

If a former spouse is entitled to a share of a member's pension benefit on marriage breakdown, then forms released by the Financial Services Commission of Ontario (FSCO) must be used by plan administrators, members and former spouses in order to divide a pension benefit. FSCO has also made available on its website Questions and Answers, as well as User Guides, on the forms and on the process of dividing a member's pension benefit.

An Application for a Family Law Value is FSCO Family Law Form No. 1 and must be completed by a member or his or her former spouse. This form serves as a request to a plan administrator to determine the value of a member's pension benefit. A Statement of Family Law Value (Form No. 4) is a form that is completed by a plan administrator, is provided to a member and former spouse and sets out the value of the member's pension benefit. There are several different FSCO Family Law Form 4s (i.e., Form 4A, 4B, 4C, 4D and 4E) depending on the member's pension benefit type that is being divided. A complete summary of all the FSCO family law forms is set out below, including information about the purpose of each form and who must complete it.

FSCO FAMILY LAW FORMS
Form #	Form	Who Completes the Form	Purpose
1	Application for Family Law Value	- Applicant can be a Member or Former Spouse - Provided to Plan Administrator - If Common-Law only Member can complete	Applying for Family Law Value
1A	Plan Administrator Request for Information/ Payment of Fee	- Completed by Plan Administrator - Provided to Applicant	Plan Administrator communicates to Applicant about missing information, required documents or applicable fee
2	Joint Declaration of Period of Spousal Relationship	- Completed by Member and Former Spouse - Provided to Plan Administrator	Sets out Family Law Valuation Date and/or starting date of spousal relationship if not set out in Court Order/Domestic Contract/Family Arbitration Award
3	Contact Person Authorization (optional form)	- Completed by Member and/or Former Spouse - Provided to Plan Administrator	Authorizes contact person to communicate with Plan Administrator on behalf of Member/Former Spouse
4A	Statement of Family Law Value (DC Benefit)	- Completed by Plan Administrator - Provided to Member, Former Spouse and Contact Person (if applicable)	Provides Family Law Value
4B	Statement of Family Law Value (Active Member with DB Benefit)	- Completed by Plan Administrator - Provided to Member, Former Spouse and Contact Person (if applicable)	Provides Family Law Value
4C	Statement of Family Law Value (Active Member with Combination Benefit)	- Completed by Plan Administrator - Provided to Member, Former Spouse and Contact Person (if applicable)	Provides Family Law Value
4D	Statement of Family Law Value (Former Member with DB Benefit or Combination Benefit)	- Completed by Plan Administrator - Provided to Member, Former Spouse and Contact Person (if applicable)	Provides Family Law Value
4E	Statement of Family Law Value (Retired Member with DB Benefit)	- Completed by Plan Administrator - Provided to Member, Former Spouse and Contact Person (if applicable)	Provides Family Law Value
5	Application to Transfer the Family Law Value (Active Member)	- Completed by Former Spouse if Member's pension not in pay on FLVD - Provided to Plan Administrator	Former Spouse directs Plan Administrator to divide Member's pension benefit
6	Application to Divide a Retired Member's Pension (Retired Member)	- Completed by Former Spouse if Member's pension in pay on FLVD - Provided to Plan Administrator	Former Spouse directs Plan Administrator to divide Member's pension
7	No Division of Family Law Value/Pension Assets (optional form)	- Completed jointly by Member and Former Spouse - Provided to Plan Administrator	Inform Plan Administrator of parties' decision not to divide pension benefit
8	Post-retirement Waiver of Joint and Survivor Pension by Former Spouse of Retired Member	- Completed by Former Spouse - Provided to Plan Administrator	Former Spouse waives right to receive survivor benefit on Retired Member's death

What's Next?

Stay tuned for Parts II to VI of Bennett Jones' Pension Division Series. Some of the upcoming pension division topics include:

• The pension provisions that must be included in a settlement instrument in order for the settlement instrument to effectively divide a pension benefit.
• What pension division rules apply if a member or former spouse dies.
• What are 'deemed arrears' if a retired members' pension in pay is divided.
• Whether a former spouse's share of a member's pension benefit may be unlocked.
• Whether interest should be added to a former spouse's lump sum share of a member's pension benefit.
• Whether recent case law has changed the maximum pension amount payable to a former spouse.
• Whether a former spouse is entitled to a share of a member's supplemental employee retirement plan benefit (SERP benefit).

We are passionate about ensuring that Ontario's pension division rules are understood and are implemented in accordance with applicable laws. There are complexities involved in the division of a pension benefit on marriage breakdown and the instances of litigation have increased in recent years. If you require assistance with any compliance matters relating to the Ontario pension division rules, please contact your Bennett Jones Advisor. We would be happy to assist you.