When people think about what a prenup protects, they usually think about the house, savings accounts, or a business. But for many Canadians, their most valuable asset isn’t any of these. It’s their pension.
A defined benefit pension accumulated over a 25-year career can be worth hundreds of thousands of dollars, sometimes over a million. And in a divorce, it’s subject to division like any other family asset. Yet most couples never discuss pensions when creating their marriage contract.
That’s a costly oversight.
How Pensions Are Divided in Ontario
Under Ontario’s Family Law Act, the growth in value of a pension during the marriage is included in the equalization calculation. The pension’s value at the date of marriage is deducted, and the growth between the marriage date and the date of separation is shared.
Ontario has specific rules for pension division under the Pension Benefits Act. The portion of the pension earned during the marriage can be divided through a transfer of a lump sum to the non-member spouse’s locked-in retirement account, or through a direct split of the pension payments when the member retires.
The valuation itself requires an actuarial report, which assesses the present-day value of future pension payments based on factors like the member’s age, years of service, salary history, and the pension plan’s terms. Most plan administrators in Ontario will do this for you. Some cost a few hundred dollars, and some are free. If you need to obtain an independent actuarial report because your plan administrator does not offer this service (or it is a federally regulated pension), these reports typically cost $1,500 to $5,000+ and are essential for an accurate division.
CPP Credits: The Often-Forgotten Asset
Beyond employer pensions, Canada Pension Plan (CPP) credits are also divided upon divorce. The CPP contributions made by both spouses during the marriage are pooled and split equally. You need to apply to the Government of Canada after a divorce is finalized for this to occur.
What a Prenup Can Do
A marriage contract can address pensions in several ways. It can exclude pension growth from equalization entirely, keeping each partner’s retirement savings separate. It can specify a formula for pension division that differs from the default rules. And it can establish how pension valuations will be conducted if ever needed.
These provisions are especially important for individuals with significant pension entitlements: teachers, nurses, police officers, military personnel, government employees, and anyone with a defined benefit plan.
Public Sector vs. Private Sector Pensions
The type of pension matters. Defined benefit pensions, common in the public sector (teachers, nurses, police, government employees), provide a guaranteed retirement income based on years of service and salary. These pensions are often worth hundreds of thousands of dollars and can be the most valuable single asset in a divorce.
Defined contribution pensions, more common in the private sector, are essentially investment accounts where the final value depends on contributions and market performance. They’re generally simpler to value and divide but still need to be addressed in a marriage contract.
Group RRSPs offered by employers fall into a similar category. While not technically pensions, they function as retirement savings and are subject to equalization. Don’t overlook them.
RRSPs, TFSAs, and Other Retirement Savings
While employer pensions get the most attention, RRSPs, TFSAs, and other registered accounts are also subject to equalization. The growth in value during the marriage is included in the net family property calculation.
A prenup can specify how these accounts are treated. For example, you might agree that pre-marriage RRSP balances are deducted (which is the default under Ontario law, but worth reinforcing in a contract) while clearly defining how contributions and RRSP balance growth made during the marriage will be handled (which is shared by default, but only the increase in value from the date of marriage to the date of separation is divided).
TFSAs are often overlooked because they’re relatively new and balances tend to be smaller. But for couples who have been maximizing contributions for years, TFSAs can represent significant savings that are worth addressing in a marriage contract.
The Retirement Planning Angle
A prenup isn’t just about protecting against divorce. It’s about planning for retirement together. By discussing how pensions and retirement savings will be handled, you’re also having a conversation about your shared retirement goals: When do you want to retire? Will one partner work longer than the other? How will retirement income be shared? For more on the financial conversations prenups spark, read The Psychology of Prenups: Why Talking About Money Builds Stronger Marriages.
Protect your retirement with a marriage contract. Get started today.
Frequently Asked Questions
Q: Are pensions divided in a Canadian divorce?
Yes. The growth in value of a pension during the marriage is included in Ontario’s equalization calculation. CPP credits are also automatically divided upon divorce.
Q: Can I keep my pension separate with a prenup?
Yes. A marriage contract can exclude pension growth from equalization, though courts may scrutinize this if it creates an unfair outcome for one spouse.
Q: What about RRSPs and TFSAs?
The growth in value during the marriage is subject to equalization. A prenup can specify how these accounts are treated.