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In recent years, the phenomenon of “grey divorce” (the separation of couples aged 50 and older) has become increasingly common in Ontario and across Canada. While divorce at any age can present legal and emotional challenges, grey divorce raises unique financial considerations. Chief among them are questions about how pensions and retirement savings are divided, and what impact the end of a long-term marriage can have on each spouse’s financial security in their later years.
Understanding Grey Divorce: A Growing Trend in Ontario
Statistics Canada has tracked a steady rise in divorce rates among older Canadians, even as divorce rates have declined or stabilized in younger demographics. For many older couples, divorce may follow years of growing apart, differing visions for retirement, or life transitions such as children leaving home or career changes. These divorces are often more financially complex than those involving younger couples due to the accumulation of significant assets, including matrimonial homes, investment portfolios, and retirement savings.
Grey divorce is not just about dividing property; it’s also about securing financial independence and stability at a stage in life where rebuilding assets can be difficult. This is particularly true for spouses who may have taken on traditional caregiving roles and have fewer personal retirement savings.
Pensions and Retirement Accounts as Family Property
Under Ontario’s Family Law Act, all property acquired during the marriage is generally subject to equalization. This includes the value of pensions, Registered Retirement Savings Plans (RRSPs), Tax-Free Savings Accounts (TFSAs), and other retirement vehicles. When a married couple divorces, the spouse with greater net family property is required to make an equalization payment to the other spouse to achieve fairness in the division of marital assets.
Retirement savings are not treated as separate from other types of family property. However, specific rules govern the valuation and division of certain retirement accounts, particularly defined benefit pension plans and defined contribution pension plans. These rules ensure that both spouses receive their fair share of the value accrued during the marriage, but the division process can be highly technical.
Defined Benefit vs. Defined Contribution Pensions
A defined benefit pension provides a predictable, guaranteed monthly payment upon retirement, based on salary and years of service. These plans are common in public sector employment and some unionized private sector jobs. Valuing a defined benefit pension requires an actuarial assessment to determine its present-day value (Family Law Value (FLV)). This is not simply the total amount contributed; it also accounts for projected future benefits, interest rates, and life expectancy.
In contrast, a defined contribution pension functions more like a savings account. The value of the pension at the time of separation is more straightforward: it is essentially the account’s market value on the separation date. These plans are typically easier to divide but still require precise accounting and legal documentation.
Regardless of the type of pension, only the portion earned during the marriage is subject to division. Contributions made before the date of marriage are generally excluded, although they must be disclosed and may still impact the equalization calculation.
Valuation and Division of Pensions: Legal and Practical Steps
The process of valuing a pension in a divorce begins with requesting a formal pension valuation statement from the pension administrator. This request is made under Regulation 287/11 of the Pension Benefits Act for Ontario-regulated plans. The administrator is required to provide the FLV, along with pre- and post-marriage breakdowns, which are critical in determining how much of the pension is subject to equalization.
Once the FLV is known, the pension can be treated in one of several ways:
- The spouse with the pension may make an equalization payment in cash or by transferring other assets.
- The pension may be divided at source, meaning the non-member spouse receives a portion of the pension payments directly from the plan upon retirement.
- The couple may agree to an asset trade-off, in which one spouse keeps the pension and the other receives property of equivalent value.
It’s important to note that court orders or separation agreements are required to legally divide pensions. Legal and financial advice is critical during this process to ensure fairness and compliance with applicable laws.
RRSPs, TFSAs, and Other Retirement Savings
RRSPs and TFSAs are treated as financial property and are subject to equalization. However, they do not require actuarial valuation like pensions do. Their value on the date of separation is used in the equalization calculation, and transfers can usually be made between spouses without triggering tax consequences, provided they are done under a court order or written separation agreement.
RRSPs often form a large part of a couple’s retirement portfolio in grey divorces. Ensuring that RRSPs are accurately valued, disclosed, and properly transferred is key to preventing financial shortfalls later in life. Additionally, while TFSAs are not taxed on withdrawal, their value still contributes to the net family property and must be accounted for.
Impact of Grey Divorce on Retirement Planning
One of the most profound consequences of a grey divorce is its effect on retirement timelines and quality of life. Many assume they will be sharing the cost of retirement with a partner. Divorce can result in the duplication of living expenses, legal fees, and reduced purchasing power. It can also require revisiting retirement plans, delaying retirement, or downsizing housing and lifestyle expectations.
The non-pension-holding spouse, in particular, may face a more uncertain financial future if they relied on the other’s retirement benefits. Spousal support may partially offset this, but it is not guaranteed or indefinite. Courts will consider the recipient spouse’s age, health, work history, and ability to become self-sufficient when deciding on spousal support in later-life divorces.
Spousal Support in Retirement-Age Divorces
In Ontario, spousal support in a grey divorce must balance two competing realities: the entitlement of a lower-earning spouse to share in the financial benefits of a long marriage, and the declining income of the paying spouse as they approach or enter retirement. Courts recognize that spousal support must reflect both need and capacity to pay.
For marriages of long duration (20 years or more), there is a presumption of indefinite spousal support, although this does not mean lifetime support in all cases. Retirement can be a material change in circumstances that justifies a variation or termination of support, but timing is critical. Courts will closely scrutinize early retirements, especially if they appear to be motivated by a desire to reduce support obligations.
Where both spouses are retiring at or around the same time, the court may opt for a more balanced support arrangement or emphasize the division of retirement assets to provide future security for both.
Matrimonial Homes and Post-Retirement Housing
For many older couples, the matrimonial home is their most valuable asset—and often the most emotionally charged. In Ontario, the matrimonial home has special treatment under family law. Regardless of which spouse holds title, both have an equal right to possession of the home until it is sold or otherwise dealt with through the separation process.
When retirement is on the horizon, determining what to do with the home can be difficult. Selling the home and dividing the proceeds may provide each spouse with capital to support independent retirement housing. However, this may not be enough to afford equivalent accommodations in today’s real estate market, especially for the lower-earning spouse.
In some cases, one spouse may “buy out” the other’s interest in the home, using other assets or financing, while in others, the home is sold, and downsizing becomes necessary for both parties. The goal is to ensure both spouses can access stable housing and financial predictability after the divorce.
Planning Ahead: Legal and Financial Guidance Is Essential
Given the complexity and high stakes of grey divorce, particularly when pensions and retirement savings are involved, professional legal and financial advice is essential. An experienced Ontario family lawyer can help ensure that assets are properly disclosed, valued, and divided. In many cases, lawyers will also work closely with actuaries, pension administrators, and financial planners to create a realistic post-divorce retirement strategy.
It is also advisable for each spouse to revise their wills, powers of attorney, and beneficiary designations following separation. Many retirement and insurance accounts allow for named beneficiaries, and failing to update these can result in unintended consequences after death.
Protecting Your Retirement in a Grey Divorce
Grey divorce may mark the end of a long relationship, but it is also the beginning of a new financial chapter. The division of pensions and retirement assets in Ontario requires careful legal navigation, precise valuation, and strategic planning. While the process can be daunting, taking proactive steps, such as obtaining legal advice, gathering financial documents, and exploring all options for equitable division, can help both spouses secure their retirement future.
Contact Johnson Miller Family Lawyers for Trusted Grey Divorce Advice in Windsor-Essex
If you are navigating a grey divorce in Ontario, protecting your financial future is essential. The division of pensions and retirement savings can have lasting consequences for your security and lifestyle. The experienced family and divorce lawyers at Johnson Miller Family Lawyers can guide you through the valuation, division, and planning process to ensure your rights are protected and your retirement remains on track. Contact us today online or call 519-973-1500 to discuss your options and take the next step toward financial stability after divorce.
