How Are Pensions Divided After A Divorce?

After a divorce, the parties will need to settle on or obtain a determination on how to divide family assets, which can include real property, valuable items, bank account balances, and other monetary assets like a pension. Pensions are treated slightly differently than other types of family assets in terms of how they are valued. Generally, family assets are valued at their fair market value, but this becomes more complex if the asset is a pension, as there is no analogous fair market value. Nevertheless, a pension would be part of the family assets to be divided, and parties need to understand how a pension can be valued and divided clearly. 

In this post, we will discuss how pensions are divided after a divorce, including possible ways that a pension can be valued, which is different from how other family property is valued. To explain this process, we will discuss a case example, Logan v Logan, 2024 ABCA 229, in which the court found that the pension’s value should be based on how the plan’s administrator had valued the pension and not on the actuarial valuations provided. This post will provide important takeaways for parties to a divorce where a pension is to be divided as family property. 

Pensions As A Family Asset To Be Divided 

For married couples, the Alberta Family Property Act applies to divide family property. Generally, any property owned by one or more of the parties at the time of separation will be considered family property. The exception would be exempted property, which includes gifts from a third party, inheritances, and awards and settlements to compensate for a loss one of the spouses suffered. Gifts and inheritances to be exempted would also have to be given to one but not both parties. Otherwise, the property will generally be considered family property subject to division. 

All family property will be divided equally unless there are valid reasons to divide it unequally. The parties can decide this through an agreement, or the court can determine whether the property should be divided unequally. 

Pensions can also be divided into family property. However, they differ from most forms of property, as the pension would be paid out or continue to be paid out in the future. It can be difficult to determine the value of the pension, and the parties may have difficulty determining the pension’s value. 

How are pensions evaluated?

Generally, most family property, such as real estate, investments, bank account values, etc., is valued at its fair market value when considering family property division. Fair market value is the amount that a potential buyer would pay to a seller on the open market. Pensions are different in that they cannot be purchased and sold like other types of property. As a result, there is no market for pensions. 

For family property division purposes, pensions are valued at the present value of the anticipated benefits that a spouse will receive under the pension. This calculation is based on several factors, including the party’s retirement date, the pensioner’s age, and how long they are expected to live. 

Specific regulations and guidelines concerning a particular type of pension plan may also exist, which the court can consider when determining the pension’s value for property division. For example, actuarial standards set by the Canadian Institute of Actuaries require a set discount rate when valuing pension entitlement depending on the time period of benefits being received. 

The court has noted that the pension’s present value is a projection based on assumptions, which can also change if the assumptions are changed. Generally, pension valuation is considered an estimate based on calculations by actuaries, as it is impossible to accurately predict how much of the pension a party may receive. 

To determine the value of a pension, the parties may seek expert evidence from an actuary, and it is not required that each party rely on the same calculations. If different actuaries arrive at varying estimates, there may be a dispute over the value of the pension. The court can also consider how the plan’s administrator calculated the value of the pension, as was the case in Logan. 

Recent Case Valuates Pension at Administrator’s Value 

In the Logan case, the trial court held that the husband’s pension should be valued at the projection provided by the plan’s administrator. The Court of Appeal affirmed this decision. 

After eight years of their relationship, the parties married in 1998 and separated in 2018. When the matter was appealed, the only issue was how to value the husband’s pension for property division purposes. 

The husband was to receive his pension through the Asbestos Workers’ Pension Plan. It was a target-benefit pension, meaning his anticipated pension benefits were not guaranteed. If the plan did not receive returns on its investments or they were below the expected value, the benefits could not be payable to the husband. The expert valuators in this case concluded that this risk would be small. 

By the time of trial, the husband was 57 years old. His pension was vested, but he still needed to receive payments. The parties had also agreed that the pension would be divided equally but could not agree on its value. 

The husband would be able to receive benefits on retirement at the age of 60. The pension plan’s administrator had calculated the pension’s value based on this factor. The husband could not cash out the pension in a lump sum unless he withdrew from the plan. If he did withdraw, he would be entitled to a commuted value, which was a starting point for calculating what a non-member pension partner would be entitled to upon separation. The non-member partner could receive up to 50% of the commuted value. 

The trial judge analyzed pension valuations, noting that before 2017, pensions were generally valued based on the practice standards set out by the Canadian Institute of Actuaries. These standards included a discount rate of 2.8 per cent for the first 20-year period and 5.5 per cent afterwards. However, the Employment Pension Plan Regulation was amended in 2017 so that pension plans could obtain permission from the Superintendent of Pensions to use a “going concern” discount rate. The “going concern” discount rate assumes that pension plan assets would be invested in higher-risk assets, such as equities. This differs from the discount rates in the practice standards, which permit non-member spouse to invest their pension assets in more conservative investments while still maintaining the same pension income as the spouse on the plan. 

The trial court followed the standard set out by the plan’s administrator, which calculated the commuted value on a “going concern” basis, with a discount rate of 5.4 per cent. The total value was calculated to be approximately $320,000.

Each of the parties retained expert actuaries to value the pension. These experts arrived at values higher than the estimate provided by the administrator, as it used a lower discount rate for the first 20 years, as set out in the practice standards. These values were rejected, as the value was already statutorily calculated, and the focus on relying solely on experts could lead to ongoing disagreements on the value. 

The Court of Appeal affirmed the trial judge’s decision to base the value on the administrator’s estimate. 

Calgary Family Lawyers Assisting Clients with Matrimonial Property Division 

Upon a divorce, the division of matrimonial property is often one of the key issues to be addressed. In order to do so, there needs to be appropriate evidence of the value of the property to be divided. The valuation and division of matrimonial property is a complex matter that is highly specific to the circumstances of the case, so you should speak with one of our family law lawyers at Mincher Koeman, who are experienced in assisting parties with issues involving property division. Our Calgary family law lawyers are dedicated to finding the best resolution for you after your divorce.

To book a consultation, please contact us online, or by phone at 403-910-3000.