Adjusting benefits after partition

Important Notice

Please consult Newsletter number 32, Amendments to the Regulation respecting supplemental pension plans effective 4 January 2018, as well as division V – Transfer of benefits between spouses This link will open in a new window. of the Regulation respecting supplemental pension plans, to find out the rules for partition applicable to spouses in a civil union, the changes to the payment methods applicable to the former spouse, and the calculation of member benefits after partition.

After partition, the plan administrator must adjust the member's benefits in the plan to take into account the share transferred to the former spouse.

In a defined contribution plan

The member's account will be adjusted downward by the amount transferred to the former spouse.

In a simplified pension plan

Locked-in and not locked-in accounts will be adjusted downward proportionally.

In a defined benefit plan

Case number 1 - The member is not retired

The plan administrator will calculate a negative pension. The member's benefits will continue to accumulate as they did before partition. At retirement, the pension will be reduced by the amount of the negative pension.

Example

A member transferred 19 000 $ from his pension plan to his former spouse. The amount was estimated to correspond to a negative annual pension of 5 950 $, payable at age 65.

From his plan, he is entitled to a pension equal to 2% of his salary x the number of years of service.

At age 65, he has a salary of 60 000 $ and has accumulated 35 years of service. Therefore, his pension is 2% × 60 000 $ × 35 years of service = 42 000 $.

At age 65, he is entitled to an annual pension of 42 000 $, from which the negative of pension of 5 950 $ will be subtracted. He will receive 36 050 $ a year.

Case number 2 - The member is retired

The member's pension will be adjusted downward in proportion to the amount transferred to the former spouse from the value of the pension at the time of partition.

Example

The member receives a monthly pension of 1 421 $. On 15 April 2001, he files an application for divorce and agrees to give his former spouse half of the value of the benefits accumulated in his plan on that date. The value is 200 000 $.

On 15 October 2001, 103 000 $ was transferred to the former spouse, that is, the expected 100 000 $ plus 3 000 $ in interest covering the 6 months between the valuation date and the partition date.

At the time of partition, on 15 October 2001, the value of the member's pension is 197 371 $. His pension will be 679 $, that is:

1421 $ − (1421 $ × 103 000 / 197 371) $ = 679 $

The decrease of the pension by more than half is due to the lapse of time between the valuation date for the purposes of partition (the date on which they stopped living together or the date of the institution of the action) and the date on which partition was carried out. During that period, the value of the retirement pension decreased, and interest was added to the amount for the former spouse.

For the pension to be decreased by just half, the money would have had to be paid to the former spouse on the day of the valuation. Since partition was carried out later, the pension was reduced by more than half. The more time there is between valuation and partition, the more the pension decreases for the member.

Other adjustments in the case of the breakdown of a conjugal union during retirement

If the member had a spouse at the time of retirement, he would therefore have been notified that after his death, his spouse would be entitled to a pension until her own death (a joint and survivor's pension).

Important consideration

At retirement, the spouse could have renounced entitlement to a joint and survivor's pension. In addition, in certain plans, the person who is the spouse at the time of the member's death is entitled to the pension. In such a case, the following does not apply.

The spouse loses entitlement to a pension if the conjugal relationship breaks down during retirement. Two alternatives are possible:

  1. Maintaining the joint and survivor's rights

    The member can give written notice to the administrator that he or she wants his or her former spouse's pension maintained.

  2. Reinstatement of a pension

It is possible that the promised amount of the member's pension will be decreased at retirement to finance the spouse's pension. It is also possible that the other characteristics of the pension will be different from those of a retiree who is single.

If the member does not ask the administrator to maintain the former spouse's pension, the member can receive the pension to which he or she would have been entitled if the member had not had a spouse at retirement. This is called reinstatement of a pension.

If partition is carried out on benefits in the pension plan after the conjugal breakdown and the member has not demanded that the former spouse's pension be maintained, the plan administrator must reinstate the pension and calculate the new amount of the pension to take into account the amount transferred to the former spouse.

However, if partition is not carried out on plan benefits and the member wants to reinstate his or her pension, the member must apply to the plan administrator.

Example

If the member had not had a spouse, he would have been entitled to an annual guaranteed pension of 20 000 $ for 10 years (that is, if he died less than 10 years after retiring, his beneficiary or heirs would receive the payments remaining in the 10-year period).

Since he is married, he instead receives an annual pension of 18 000 $, with no guarantee. It is a joint and survivor pension, that is, upon his death, his spouse will receive a life income of 10 800 $ a year (60% of the pension).

The member divorces 4 years after retiring and partition is not carried out on his pension plan. He asks the administrator to reinstate his pension. He will receive an annual pension of 20 000 $. In addition, his plan will guarantee that his pension will be paid for at least 6 years.

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