A court order can vary some aspects of pension division. A court can, for example:
- provide, having regard to specified factors, that the spouse receives an equal share of the pension benefits, or a share that is less than, or more than, an equal share; [FLA, ss 95 and 129]
- vary the dates to be used to determine the benefits that are attributable to the relationship; or
- allocate the former spouse’s share against other property. [FLA, s 97(2)]
Additional Directions
Where an agreement or order dividing pension benefits has been made, and questions arise concerning how to implement the division, an application can be made to the court for directions to clarify how the benefits are to be divided. [FLA, s 130]
Modifying aspects of the pension division rules—an extraordinary power
A court is also empowered to modify aspects of pension division under Part 6 of the FLA where the default rules would produce an inappropriate result. [FLA, s 131] But this is an extraordinary power. A court will be reluctant to depart from the methods set out under Part 6 except in extreme cases where the legislated rules will produce an unfair result. The statutory methods are designed to protect the interests of the spouse, member, plan administrator and other plan members. So a consent order obtained by the parties without notice to the plan administrator would not be an effective exercise of the jurisdiction under s 131.
Departures from the statutory division methods may well prejudice one of these parties. There must be a specific finding that the usual rules under Part 6 are inappropriate because of some special feature of the terms of the plan. It is not a jurisdiction to depart from the legislative rules simply because the parties would prefer some other method of pension division. Section 131 was designed to ensure that the court retained a jurisdiction to deal with unexpected provisions in pension plans.
Balancing the interests of all parties concerned
The legislation provides the court with flexibility to make an appropriate order in the circumstances, but the court must be vigilant to see that the order is consistent with the policies sought to be advanced by the legislation. Before Part 6 of the FRA came into force in 1995, courts refused to make orders binding on plan administrators. Plans were regarded as innocent third parties to the dispute between the former spouses. Courts will continue to make sure that orders do not prejudice plans.
Moreover, every departure from the rules set out in Part 6 carries with it some risk. The change might upset the basis upon which the plan is funded, for example. Or the change might make it more difficult and more expensive for the plan to administer the pension division simply because the plan will not be able to rely upon the systems put in place to give effect to Part 6 divisions.
A person requesting an order that substantially departs from the methods of division set out under Part 6 must give the plan administrator notice of the application.
| 12.1 Court order divides pension on a net basis | The court order sets out the interests of the spouse and member based on the assumption that the member will pay tax on the whole amount. But the legislation requires the plan administrator to make separate withholdings from the shares of the member and the spouse, which leads to a different result. What should the plan do? |
| The order is inconsistent with the requirements of the ITA and Part 6 of the FLA. The tax provisions in the order are based on the kinds of arrangements that were necessary before changes to the Income Tax Act were introduced and before CRA’s policy on this issue was more completely settled. It is clear now, however, that under the ITA each of the parties is responsible for taxes payable on their respective shares of pension benefits paid under registered pension plans that are divided under provincial legislation (for the position with respect to disability benefits paid under a pension plan, see para 9.5). Part 6 requires separate withholdings. [FLA, s 141(3)] The plan administrator should: explain the problem to the member and spouse;recalculate entitlement by applying the proportionate share formula to the gross pension;show the member and spouse the amount they are entitled to on a net basis, after making separate source deductions (this will usually result in no change, or larger shares for spouse and member); andhave them agree to the variation. | |
| 12.2 Court order doesn’t say Part 6 applies | We have received a court order dividing the pension benefits, but it does not refer to Part 6 of the FLA. Is the order binding on the administrator anyway? |
| Yes. Part 6 of the FLA applies in any case in which the spouse is entitled under Part 5 of the FLA to a share of pension benefits (unless the parties expressly agree, or the court expressly orders, that Part 6 does not apply). [FLA, s 111(1)] Provided the agreement or court order indicates that the benefits are to be divided, there is no need for an express reference to Part 6 for the agreement or order to be binding on the administrator (although it is obviously better practice to include such a reference). [See paras 1.6, 1.8 and 11.3] | |
| 12.3 Court order gives all to spouse | We have received a court order that gives the spouse 100% of the member’s benefits. Is that a valid order under the legislation? |
| Yes. The spouse’s proportionate share, whether specified by agreement or court order, can be any amount. [FLA, ss 95, 127 and 129] As a matter of policy, a court should be reluctant to make such an order if opposed by the member. It is important to protect the nature of the pension entitlement, which is to provide retirement income for both spouse and member. One situation where the order would be appropriate, and consistent with the policy of protecting retirement income for the spouse and member, is where the member has two pensions. Allocating all of one pension to the former spouse might be a very sensible way of apportioning entitlement in such a case. | |
| 12.4 Pre-relationship pension accruals | When should a court order the division of pre-relationship accruals? |
| [See paras 2.25 and 2.27] | |
| 12.5 Insufficient information to divide | Our plan uses a benefit formula provision. We have received a Form with an order attached that provides that the benefits are to be divided under Part 6, that the value of the pension is $36,000 and that the spouse is entitled to 1/3 of that. This makes no sense in terms of the requirements of Part 6. How do we administer the division of these benefits? |
| Send the spouse and member a notice under Reg., s 7(2) explaining why it is not possible to act on the materials that were filed and what must be provided to divide the benefits. Explain the problem. The notice must be sent within 30 days of receiving the Form P2. [See para 12.6 on revising the obligations under a court order] |
| See paras 15.28 and 15.29 for information about calculating the notice period and determining when notice is deemed to be received. | |
| 12.6 Further directions | The administrator sent the member and spouse a notice under Reg., s 7(2) explaining that the materials filed do not provide enough information to divide the benefits. The spouse and member are in agreement about how the order should be revised. Do they have to apply for a new order before the administrator can act on their agreement? |
| No. There are a couple of options here. The parties could execute a prescribed Form P9, so long as this doesn’t create unintended consequences—for example if they don’t agree on the dates of the relationship. Alternatively, an administrator can act on their agreement without a new order. Parties can vary the terms of a court order by agreement to the extent that it applies to them and not third parties. All the plan administrator would require in this case would be written instructions signed by both the spouse and member. It might be easiest for the administrator to set out the new instructions and request the spouse and member to sign a copy and return it. It is usually a good idea to require the signatures to be witnessed. However, if further directions are required, and the parties cannot agree, the FLA permits a court application to be brought by either of them to clarify how the benefits are to be divided. [FLA, s 130] This is a legislative version of the common clause found in agreements and court orders dividing benefits that provides that the parties continue to have liberty to apply for an order to facilitate or enforce the division of the benefits in accordance with the specified pension division arrangements. | |
| 12.7 Invalid court order | We administer a plan in which benefits are determined by a benefit formula provision. We have received a Form P2 and a court order providing for an immediate transfer of the spouse’s share from the plan, but the member is not yet eligible for pension commencement (and this option is not available under Part 6 until the member becomes eligible for pension commencement). What are our obligations? |
| You are correct that, under Part 6, a transfer of the commuted value of the spouse’s share of benefits determined by a benefit formula provision is not available until after the member becomes eligible for pension commencement and that the member is entitled to a lump sum option at the time [FLA, s 115(3)] Technically, a court can make an order departing from the Part 6 rules, but the jurisdiction to do so depends upon a finding that some aspect of the plan’s terms makes the default rules inapplicable, which is not the case on these facts. [See Chapter 12, Introduction] |
| Consequently, you should advise the parties, using Form P6, that the order is ineffective because it does not comply with the Act. | |
| 12.8 Entered order required | The member’s pension has commenced, and the parties have provided us with an excerpt from the judge’s “Reasons for Judgment”, which sets out some pretty vague guidelines about determining the spouse’s share. It’s not clear if this is meant to be a direction to apply the Part 6 rules, or a variation of them. What should we do? |
| The plan administrator’s obligation to assist in dividing the benefits arises when it receives from the parties either (a) a written agreement dividing the pension benefits, or (b) an entered court order. [FLA, s 134] The Reasons for Judgment are not the same thing as an entered order. After a judge hands down a decision, the parties must then take the steps necessary to have the decision recorded in the form of an order. That order must be entered in the registry. Only then is it binding on third parties, such as the plan administrator. Until the parties provide you with the entered order, the former spouse must look to the member for the spouse’s share of the benefits. Once the entered order is delivered to the plan (with Form P2 and the administrative fee, if required), payments can be made directly to the spouse. | |
| 12.9 Limitation periods and court orders | We have a client who wants to claim a share of a former spouse’s pension benefits under the FLA. The parties divorced 4 years ago, and there is no order or agreement dividing the pension benefits. What options are available to our client for pursuing this claim? |
| Your client’s claim may no longer be available because of the expiration of a limitation period. Under the FLA, there is a time limit for bringing any claim to family property under Part 5 (2 years from divorce or, for spouses in a marriage-like relationship, 2 years from the date of separation). [FLA, s 198(2)] Under the FRA, the time limit was built into the definition of spouse. [FRA, s 1, definition of “spouse”] An application had to be made within two years of an order of divorce, nullity or judicial separation. The B.C. Court of Appeal, in Suckau v Suckau, 2002 BCCA 300, interpreted this as meaning that rights vested under Part 6 were lost when a person ceased to qualify as a spouse. |
See paras 13.22-13.23.
There may be alternative means of advancing claims under the FLA. If the parties made an agreement about their property, the agreement may be reviewable by the court if the benefits were not disclosed, or on other specified grounds. [FLA, s 93((3)(a)] The limitation period for an application to set aside or replace an agreement about family property is 2 years from the date the spouse discovered, or ought reasonably to have discovered, the grounds for making the application. Although it does not sound like it would help in this case, it is also open to the parties to agree to have benefits divided under Part 6 (effectively waiving the application of