When a man in British Columbia and his wife of 30 years decided to part ways, both spouses agreed to divide their Canadian Pension Plan credits equally. When his former wife passed away several years later, he was shocked to discover that her share of the CPP credits were gone as well.
Unlike British Columbia, Ontario law requires that spouses split CPP credits even if their relationship ends. As a result, many Ontarians could find themselves in a situation not unlike the B.C. man. Despite the fact that over the course of their marriage, he had contributed more than his wife had, his irrevocable decision to split his credits with his partner ended up costing him a significant amount of money.
According to an actuary, pensions are payable for life. When a life ends, so do the pension payments. When spouses separate and divide their pension credits, the surviving partner no longer has any claim to the payments. Instead of shifting the payments so that the surviving spouse can enjoy their full CPP benefits, the funds become permanently unavailable.
How can separating spouses avoid finding themselves in a similar situation? Unfortunately, they can’t. In Ontario, it is mandatory to split CPP benefits accumulated throughout the duration of the relationship, no matter what. Even a marriage agreement can’t change the fact that couples must divide their CPP credits.
The best way to avoid being blindsided is to prepare yourself ahead of time. Speak to an experienced lawyer to ensure that you understand the full scope of what’s involved with credit splitting so that you can adjust your budget and expectations accordingly.