Canada Pension Plan Credit Splitting
CPP Canada Pension Plan Pensionable Credit Division and BC Separation Agreements and Divorce Orders – Be Careful!
BC family law clients and their spouses often reach comprehensive separation agreements with regards to the care of control of children, child support, spousal support and property. They negotiate and take matters to their own hands in order to reduce the time, cost and stress of litigation. Amicable settlements are beneficial and prevent conflict and tension which are not to the best interests of anyone, especially children.
Once spouses reach settlement, they need to put same into writing. Separation agreements are comprehensive contracts entered into by spouses. They are extremely detailed and important. They must be all encompassing and address every issue arising out of two people’s cohabitation or marriage.
This family law blog focuses on division of pensions; more specifically: the Canada Pension Plan (the “CPP”).
Most individuals in Canada accumulate pensionionable earnings through their income and employment. A part of these individuals’ paycheque automatically gets contributed to CPP and when these individuals reach retirement age, the CPP provides them with a monthly pension. The maximum pension earnings for the 2012 year is approximately $986 per month. Such pension is paid monthly until the individual passes away.
When spouses separate or divorce, by default they have the right to equalize pensionable credits for the period they were together. This means that each of the spouses’ pensionable credits get added together for the time they are together, then divided equally. Consider this scenario: The husband has certain pensionable credits and is to receive $500 per month upon retirement. The wife has certain pensionable credits and is to receive $700 per month upon retirement. The husband and the wife separate and the husband applies to equalize pensionable credits. The CPP in this case will add up the two pensionable credit totals and can equalize the pensionable credits. If the parties cohabited for the entire period they contributed to the CPP then each would receive $600 per month upon retirement.
Remember: credit splitting between former spouses or common-law partners means that for the period they lived together, Canada Pension Plan credits can be “equalized”.
What If the Parties Agree Not to Divide Their Pensionable Credits?
British Columbia
An amendment to the B.C. Family Relations Act allows spouses to waive, in a marriage or other written agreement, their right to a division of CPP credits. The amendments apply to agreements entered into on or after June 4, 1986 but the legislation was only proclaimed in force July 1, 1995.
In their separation agreement, the husband and wife may decide that they do not want their pensionable earnings to be equalized or divided. If they plan on waiving rights to the other spouse’s unadjusted pensionable earnings, they must use specific wording in the separation agreement to address the CPP. Such wording has to refer to specific sections and clauses of the Canada Pension Act. If specific wording is not used, then the CPP may equalize pensions despite the separation agreement saying otherwise. For this reason, it is very important that you consult with a lawyer regarding your separation agreement and comply with the legislation to ensure your CPP is fully protected.
If you require any help with review or drafting of your cohabitation or separation agreement, please call us at any of our 4 offices in Vancouver, Kelowna, Surrey and Fort St John toll free at 1 877 602 9900.
