Should I Split My CPP Pension?

What Do You Need to Know About CPP Pension Splitting Following a Divorce?

Many individuals have contributed to the Canada Pension Plan (CPP) at some point during their adult lives. When they turn 60, those who have participated in the CPP may apply to begin receiving retirement benefits based on the value of their contributions to the plan. This important program is designed to provide income and stability to older Canadians during their golden years. But you may wonder: what will happen to this pension plan in the event of a divorce?

CPP credit splitting is part of the property equalization that occurs after a divorce or legal separation. For individuals divorcing in Ontario, credit splitting between spouses typically occurs automatically as one step of the divorce process. A knowledgeable Ontario divorce lawyer can explain how CPP credit splitting works and what effect it may have on your current and future pension benefits.

How is a CPP Split Calculated?

Reallocating the CPP credits a divorcing couple has earned during their respective careers requires adding the total of each spouse’s pensionable earnings together and then dividing by two. Each spouse will automatically receive half of the total CPP credits. This equal division of credits ensures that a spouse who spent many of their wage-earning years raising children or running a household is not significantly disadvantaged in their retirement by these factors.

An equal split may also protect some spouses going through a divorce after retirement. The reallocation of credits could help a lower-earning spouse continue paying their bills and maintaining financial stability after the divorce. Considering individuals beyond retirement age often have difficulty reentering the workforce, having a steady retirement income can prove vital.

However, if you are or were the higher-earning spouse, you may see a significant decrease in your retirement income following the CPP reallocation. It is critical to speak with a knowledgeable lawyer or financial advisor to ensure you fully understand the repercussions of a CPP on your retirement income and planning strategies.

How is CPP Pension Sharing Different From Pension Splitting?

CPP pension sharing is an option for individuals who are already receiving or are eligible to receive their pension. Through sharing, a person can allocate a portion of their pension to their current spouse or common-law partner. Unlike pension splitting, which occurs after a separation or divorce, pension sharing can only happen while a couple is in a legal relationship and living together.

Any CPP pension sharing plan will end in the month a couple finalizes their divorce or after 12 months of separation. Pension sharing also stops if one partner dies or both spouses request a cancellation of the arrangement. Pension sharing is most often used for tax planning purposes because it may reduce the couple’s tax liability while still providing the same overall income.

Do You Have a Choice in Whether to Split Your CPP Pension After a Divorce?

Splitting CPP credits after a divorce is generally compulsory in Ontario. In this province, splitting does not require an agreement or negotiation. Either spouse or their legal representatives are eligible to apply by completing form ISP 1901 (Application for Canada Pension Plan Credit Split).

CPP pension splitting is typically a mandatory part of a legal separation or divorce across nearly all of Canada. Still, the exact laws on pension splitting can vary based on the province where your divorce is finalized. For example, some provinces, such as Alberta, Saskatchewan, and British Columbia, do allow couples to exclude CPP pension splitting in spousal agreements. Quebec has its own pension plan, known as QPP, which has plan-specific rules and regulations. It is highly recommended to consult a knowledgeable divorce lawyer to fully understand the provincial laws that could apply to your case.

Does the Division of Your CPP Credits Affect Your Spousal Support Payments?

The value of your CPP credit split will likely affect the monthly spousal support you pay or receive as part of your divorce agreement. The standard division of credits in Ontario is determined by adding the credits both spouses have accrued and dividing them equally between both individuals. It may be possible to negotiate an agreement that provides more credits to your spouse in lieu of other assets if that is more beneficial to your financial goals.

It is necessary to discuss your unique situation with a knowledgeable financial planner or lawyer to uncover the full extent of the impact of CPP splitting on spousal support payments. Online CPP splitting calculators exist that give you a rough idea of what your spousal support liabilities may look like. However, information gleaned from online sources cannot account for all the variables that could be present in your divorce situation and should not be considered a substitute for skilled legal and financial guidance.

How Can Our Family Law Firm Help You?

Divorces bring up many different emotions and can be legally complex to navigate. A CPP pension split is just one topic you will need to address and plan for as you and your former spouse divide your finances after a divorce. Understanding how Ontario’s laws affect pension reallocation and other issues can be essential as you negotiate your divorce agreement and look ahead to your future.

Our experienced divorce lawyers at Anthony Family Law can provide clear, compassionate legal counsel during all aspects of your divorce. We leverage our in-depth knowledge of provincial and federal requirements to uphold your rights and help ensure that you can move forward from this challenging time with confidence. We can assist if you have questions about CPP splitting, property equalization, or any other element of a potential or ongoing divorce. To schedule a free case evaluation, contact our office today at 647-933-2397.