Dividing one spouse or partner’s pension when the relationship ends can be complicated. The end goal is a just and equitable division under Alberta’s Family Property Act.
A common question I receive is whether the law treats pensions differently from other family property when dividing assets between separating spouses or partners. This is an understandable concern, particularly when one considers the unique nature of pensions as financial instruments.
A pension represents a store of future income: individuals contribute to it during their working years from current income and expect to receive payments when they retire. Its value generally increases over time through these contributions and investment returns on contributions. This is different than other assets, which a person typically acquires for immediate use and enjoyment, and which tend to depreciate over time.
Even though pensions have distinct characteristics, they are treated the same way as other forms of family property when dividing it on separation or divorce. Like all other family assets acquired during the marriage or while living together, pensions are usually divided equally and the date for valuing it is the date of trial (usually the date of the final hearing or when the parties reach settlement). Sometimes the date of trial is many years after the date of separation. Therefore, the pension a person earns between the time of separation and the date of trial is at risk of being divided equally. Yikes!
There are five factors that can change how a pension is divided between separating parties. Each factor is described below, along with some practical considerations.
1. The method for valuing the pension
A pension’s value comes from the money put into it by the employee (and sometimes their employer) over the years. The pension provider then invests this money, helping it grow over time. The final amount a person receives depends on several factors, including how long they worked, how much they earned, and whether the plan is a defined benefit plan or a defined contribution plan.
In a defined benefit plan, the payout is based on a formula that considers the employee’s salary and years of service. In a defined contribution plan, the value depends on how well the investments perform. Defined benefit plans are usually worth more than defined contribution plans.
For pensions governed by legislation, such as public pensions, the legislation usually sets out a valuation method. The 2024 Alberta Court of Appeal decision in Logan v. Logan confirmed that courts may use the valuation method in the legislation when available, such as in the case of a teacher’s pension.
For private pensions without a statutory valuation method, an actuary can help determine the pension’s value. Or the parties may rely on the pension provider’s valuation.
2. Whether a couple was married or adult interdependent partners
A common misconception is that a party keeps their pension earnings from the date of separation onwards. This is not true. But how a pension is divided after separation depends on whether the couple was married or adult interdependent partners.
The law says parties must equally divide property, including pensions, acquired from the beginning of cohabitation or marriage until the parties are officially divorced, receive a declaration of irreconcilability, or are former adult interdependent partners. The law also says property that one party acquires after one of those events is divided between the parties based on what the court thinks is just and equitable under section 8 of the Family Property Act.
For married spouses, the date of divorce typically aligns with the date of trial. This means the presumption of equal division of property applies to all pension earnings of one or both parties from the date of marriage up to the date of trial, including the period following separation.
The dates are different for adult interdependent partners. The law considers adult interdependent partners to be former partners once they have been separated for one year. The law says any pension amounts earned beyond this one-year mark are to be divided on a just and equitable basis, rather than equally.
Because of these different timelines, adult interdependent partners are more likely to avoid dividing pension earnings accumulated in the later years following separation, compared to married spouses going through a divorce.
3. Just and equitable division under section 8
Section 8 of the Family Property Act grants the court discretion to order an unequal division of pension assets after considering factors such as:
- Each party’s contributions to the marriage or family welfare (including homemaking and parenting duties)
- Each party’s financial contributions toward acquiring or improving family property
- Each party’s income, earning capacity, liabilities and financial resources
- The length of the marriage or adult interdependent relationship
- Tax consequences
- Prior agreements regarding property division, such as a prenuptial agreement
- Anything else the court deems relevant
When applying these factors, the court does not start with changing the date of valuation from the trial date. Instead, the court calculates the total pension value at the trial date and then decides how much of the pension each party should receive after considering all relevant factors.
The court might divide a pension unequally (e.g. 60/40 or 70/30). Or the court might exclude pension contributions made after a certain date, especially if one party is paying support using post-separation income (see more below).
4. Exemptions
The law says any property one person acquired before the parties began living together or got married is exempt, as long as it remains separate from other assets acquired during the relationship. The law also says any increases in the property’s value over the course of the relationship should be divided on a just and equitable basis. If that property becomes intermingled with other property that is not exempt from equal division, then there is a risk of losing some of that exemption.
One key advantage of pensions is that they cannot be intermingled with other assets acquired during the relationship or marriage. This sets them apart from other exempt assets, which are more easily intermingled with non-exempt assets or moved into joint names.
For example, consider RRSPs that a person owned prior to the relationship. If the person continues to contribute to their RRSPs during the relationship, those new contributions must be divided equally. However, if the person leaves their RRSPs untouched during the relationship, the initial value retains its exempt status.
5. Support
Because pensions come from employment income, there are concerns about double dipping. Alberta courts generally find it inequitable for a person to pay spousal or partner support from their income and then also divide the pension they earn from that income with their former spouse or partner.
There are exceptions where the person paying spousal or partner support may still find themselves having to divide some or all of their pension earned during the period they were paying support. One example is when a payor is paying support amounts that are too low. The court may decide to equally or unequally divide pension saved during the period that these low support payments were made. The court may also opt to divide the whole pension earned during the marriage, or relationship, but do so unequally in a way that they find is equitable, after balancing both the support paid, and the general presumption that property is to be divided equally.
There are situations where the court may still opt to divide the pension equally, even if appropriate support was being paid, such as when the party who received support has an exceptional need.
When dividing the pension unequally the court may opt to divide equally all pension earned up to the date when support payments began, as valued at the date of trial. What this would look like is that a pension worth $100 at the moment that support payments began earned 5% interest by the time of trial, the court would divide $105 rather than just the original $100.
Practical considerations
When determining whether pensions should be divided equally or unequally, several practical considerations arise:
- Financial Disclosure: Both parties must provide full and accurate financial information. Failure to do so can result in adverse inferences or an unequal division of property.
- Expert Valuation: Engaging actuarial experts ensures accurate pension valuations, which is crucial for equitable division. However, this is also expensive and may be unnecessary if legislation already says how to value the pension. In this case, the pension provider will usually provide its value.
- Tax Implications: Pension divisions can have significant tax consequences. It’s important to consider these implications to avoid unintended financial burdens.
- Plan-Specific Rules: Each pension plan may have unique rules about how to divide it when a relationship breaks down. Understanding these rules is vital for effective negotiation and settlement.
Towards a fair and equitable division
Under Alberta’s Family Property Act, pensions, like all other family property, are presumed to be divided equally for spouses and adult interdependent partners. However, the Act provides courts with discretion to order an unequal division when justified by specific circumstances, such as non-disclosure of financial information, support payments, post-separation contributions, or valuation disputes. Ultimately, the goal is a fair and equitable distribution of family property, given the unique circumstances of each case.
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DISCLAIMER The information in this article was correct at time of publishing. The law may have changed since then. The views expressed in this article are those of the author and do not necessarily reflect the views of LawNow or the Centre for Public Legal Education Alberta.
About Mathieu Maillet
