Contracting Out of Pension Division under the Canada Pension Plan
One of the sometimes overlooked aspects of a matrimonial property settlement is the splitting of CPP credits. Splitting of credits can make a significant difference, as for many people CPP is an important source of income in retirement. “Splitting” of CPP credits really means the equalization of those credits earned by both partners during the period of cohabitation (which must be a minimum of one year).
Legislative amendments that became effective January 1, 1987 made CPP credit splitting in the case of divorce or legal annulment (occurring on or after January 1, 1987) or the separation of common-law partners “mandatory”, unless parties waive that right by entering into a written agreement to that effect that otherwise meets statutory requirements. One of those statutory requirements is that a provision in a written agreement not to divide CPP pension credits must have been permitted by a provincial statute.
At present, the only provinces that have such provincial legislation permitting waiver of CPP splitting are Alberta, British Columbia, Saskatchewan & Quebec. So residents of provinces other than Alberta, British Columbia, Saskatchewan & Quebec, parties are not able to waive their rights to a split of their partner’s CPP credits. For instance, in the recent case of Spencer v. Spencer Justice Brian Furey of the Supreme Court of Newfoundland and Labrador determined (in the face of two parties who mutually wanted to refrain from any CPP splitting between them) that the Canada Pension Plan legislation governs and all persons are bound by it. He noted that what the parties had attempted to do was contract out of the division of CPP credits through an invalid clause in a separation agreement and then two invalid consent orders of the Court. The Court held that the statutory provisions govern and they override any separation agreement or court orders otherwise.
Despite the fact that most provinces in Canada do not have the necessary legislation in place necessary to avoid automatic CPP splitting, the rate of CPP splitting is very low relative to the number of divorces and separations in Canada. The takeaway for divorcing or separated common law partners who are residents of Alberta is that unless you have signed a legal agreement or entered into a court order waiving your right to split your partner’s CPP credits, it is likely in your best interests to apply for a split. However, there may be some exceptions for those who have definitely earned more CPP credits than their partner, and you may wish to seek further legal advice before applying for a split if that is the case.
For both married and former common law partners, you must be separated for at least one year prior to applying. For legally married spouses, there is no time limit for applying for a split, except in the case of death of one spouse in which case the surviving spouse must apply within three years of the date of death. For common-law partners, application for a split must be made within four years of the date of separation unless both parties agree to waive the time limit in writing in which case application is not time-limited.
In order for a split to take place the party requesting the split must provide the Minister with the required information. The forms for requesting a CPP split can be found on the Service Canada website.