The effects of partition
Equal partition of the benefits accrued under your pension plan is not always the best way to share your assets. When you consider the partition of benefits under your pension plan, you must also take into account several elements, including the following:
Interest must be taken into account
Please note that interest will be added to the amount paid to your former spouse, even if the judgment or agreement does not mention it. Interest will be calculated for the period starting on the date of the valuation of your benefits (which can be the date on which your conjugal relationship ended or the date on which procedures began), and ending on the date on which the amount is actually paid to your former spouse. Following partition, the capital and interest paid to your former spouse will be subtracted from your benefits.
As an important result of adding interest, if you are already retired and you give half of the value of your pension to your former spouse, your pension will decrease by more than half following partition.
What about cash needs?
Your former spouse cannot receive his or her share in cash, unless:
- he or she has no longer been living in Canada for at least 2 years
- the amount to be received is less than a certain limit ($12 320 in 2021)
Your former spouse will have to transfer the sum received to a locked-in retirement account (LIRA) or a life income fund (LIF) in order to procure a retirement income. The statement of benefits that you can request from the pension plan administrator will inform you of the available options.
Don't forget about taxes
The amounts transferred to your former spouse's LIRA, RSSP, LIF or RRIF will not be taxed at the time of the transfer if you fill out the proper tax forms. Thereafter, all amounts withdrawn by your former spouse will be added to his or her income.