Dividing Pensions in BC: How Pension Division Works on Separation

For many separating couples, the pension is worth more than anything except the home. It is also the asset people most often get wrong, because it is divided under its own set of rules rather than like a bank account.

This guide explains how pension division works in British Columbia, the choices a spouse can make, and why the wording of your separation agreement matters to the plan administrator.

Is a pension family property in BC?

Usually, yes. Under the Family Law Act, family property expressly includes a spouse's entitlement under a pension plan, an annuity, a retirement savings plan or an income plan. On separation, each spouse has a right to an undivided half interest in family property, unless an agreement or order says otherwise.

Property a spouse brought into the relationship is generally excluded. For pensions, that idea is built into the formula: only the part of the pension earned during the relationship is shared. For the wider picture of what is shared and what is not, see our guide to family property division in BC.

Part 6 of the Act then sets out how a spouse's share of the pension is actually calculated and paid. It applies unless an agreement or order provides otherwise.

How the spouse's share is calculated

The Division of Pensions Regulation sets default formulas. They apply unless your agreement or court order replaces or modifies them.

• Defined benefit plans (a pension based on salary and years of service): the spouse's proportionate share is one half of the pensionable service earned during the relationship, divided by the member's total pensionable service.
• Defined contribution plans (an account balance): the spouse receives one half of the amount remaining after the pre-relationship contributions and the investment returns on those contributions are deducted from the account balance.

As a simple example, if a member has 20 years of pensionable service and 10 of those years fall within the relationship, the spouse's default share is one half of 10/20, or one quarter of the benefit. For a defined contribution account, if the balance is $200,000 and the pre-relationship contributions with their investment returns come to $80,000, the spouse's default share is one half of $120,000, or $60,000. The dates used for the start and end of the relationship matter, so they should be stated clearly in the agreement or order.

Your options with a defined benefit pension

If the plan is a BC-regulated (local) plan and the pension has not yet started, the spouse can usually become a limited member of the plan. A limited member has rights against the plan in their own name. The limited member can then choose:

• A separate pension, paid directly to the spouse by the plan for the spouse's lifetime, or
• A transfer of the commuted value of the spouse's share out of the plan, but only if the plan allows members to transfer their commuted value.

Either option can start no earlier than the earliest date the member could have started their own pension. If the pension is already being paid, the spouse is instead entitled to a proportionate share of each payment during the member's lifetime.

Pensions held in a locked-in retirement account (LIRA) or life income fund (LIF) can also be divided by transferring the spouse's share. Pensions regulated outside BC, such as federally regulated plans, are divided by the method that plan or its governing law provides, so check the plan before assuming the BC options apply.

Keeping the pension and paying compensation instead

Spouses can make a written agreement that divides pension benefits differently. The Act allows an agreement that leaves the member with less than half, or none, of the benefits, or that satisfies the spouse's interest through compensation, such as a larger share of the home. Unless the agreement says otherwise, compensation is calculated under the regulation.

Trading a pension for other assets needs care. A pension value is not cash in hand: it is taxed when paid out, and each spouse is responsible for the income tax on their own share of divided benefits. A trade that looks even on paper can be uneven after tax and timing are taken into account.

Paperwork and common traps

A plan administrator can divide benefits only after receiving a copy of a separation agreement or court order, and notice in the prescribed form. Several problems come up often:

• Silence can cost you. If a final agreement or order says nothing about the pension, the Act deems all the benefits to belong to the member. A spouse who meant to claim a share may lose it.
• Survivor benefits follow beneficiary rules. After division, who receives the member's share of survivor benefits is decided by the law on beneficiary designations, so designations should be reviewed after separation.
• Timing. Delays in finalising terms can affect when payments start. The Act has rules for retroactive division when a pension start is delayed by negotiations, but they depend on documents reaching the administrator on time.
• Disability benefits. If an agreement or order is silent on disability benefits paid by the plan, they are deemed to belong to the member.

Canada Pension Plan credits

CPP is separate from workplace pensions. The pensionable earnings each spouse built up while living together can be added together and split equally. This is called credit splitting, and Service Canada describes the division as permanent.

• Divorce: the federal Act provides for a division once the Minister is informed of the divorce judgment and receives the prescribed information.
• Separated married spouses: either spouse can apply after living separate and apart for at least one year.
• Common-law partners: an application can be made after one year apart, generally within four years after the separation, unless both former partners agree in writing to a later application. The partners must have lived together for at least one continuous year.

BC's Family Law Act lets spouses agree in writing that CPP credits will not be divided, but the federal rules decide whether that term is honoured. Get advice before relying on it.

After the division: update your estate plan

Pension division often happens at or near retirement, and it changes what each spouse will leave behind. Once the division is complete, review your will, beneficiary designations and powers of attorney so they match your new circumstances.

Separating with a pension? Get the division terms right

Our family lawyers can value the options, draft the pension terms of your separation agreement, and prepare the notices your plan administrator needs.

Call 604-259-2844 or send us a message to arrange a consultation at our Vancouver office.