Statistics out of Canada and the United States are telling us that the divorce rate among people over the age of 50 is growing. There are unique challenges that face families in this demographic. It may be that they are spared the worries and the challenges of co-parenting small children, but their issues are no less daunting or troubling for them. For a lot of people approaching retirement, they are looking to put into action a plan that was started many years ago. However, if separation and divorce is now a part of that equation, the long nurtured plans are no longer as certain as they were.
1. Pensions
Although not as prevalent as they once were many employers still provide some sort of pension for their hard working employees. There are basically two kinds of pensions, a defined contribution pension and a defined benefit pension. Both of these form part of a family’s asset base and when there is a breakdown of the relationship, both are usually subject to division between the parties or are a part of a larger equalization calculation. Pensions usually have a great deal of emotion invested in them and it can be difficult for a pension member to see that asset diminished through a family change. We work with pension administrators and actuaries to properly value pensions and provide families with a full complement of options to consider in dealing with their pensions. Depending on how close to retirement a pension member is, and the unique rules of their specific pensions, different options may be available to that pension member.
It is important for a pension member to obtain a pension statement from his or her pension administrator and to disclose the asset. The value given by the pension plan may not be the actual value to the pension member. This is why we often involve actuaries who can take the specific circumstances and plans of former partners and spouses and provide a much more nuanced value of the pension.
2. CPP
Throughout our working lives Canadians contribute to the Canada Pension Plan. For many, this pension forms an important part of their post-retirement plans. The current maximum (non-disability) CPP benefit is $1,092.50 per month.
After a divorce, or even 12 months after a separation with or without an agreement, former spouses and common law partners can apply to equalize their Canada Pension Plan credits that were accumulated during the marriage. In families where one partner was out of the work force for an extended period, or worked part time, this can have a significant impact. Generally, each full year of Canada Pension Plan contributions translates into approximately $25 per month in benefits upon retirement.
Splitting CPP credits should not be an automatic decision. There may be situations where it is beneficial for the family as a whole to not split the credits but should, instead, craft a support arrangement that takes into account that retirement income being received by one party.
Depending on how close former spouses are to retirement, it may be prudent to defer this decision until just before retirement when the federal government can provide some clear information regarding benefit amounts.
If the decision is made to split credits there are some important timing issues to consider: former common-law partners can apply within 4 years of separation.
This is just a taste of some of the issues to consider, more information regarding the Canada Pension Plan is available here.
3. Children becoming independent
As a parent with very young children, it seems like a distant dream to see my daughters finishing school and leaving home, but I suspect it will come sooner than I think. Children of parents who have ended their relationship are entitled to have their parents help them through university. Depending on whether the parents were married or not, there are different rules about when the child is expected to be independent. Like with retirement, many families start planning very early for their children’s post-secondary education. Many parents will have opinions about to what extent children should be funded and supported after they are 18. Families have an opportunity after marriage or relationship breakdown to be thoughtful about these parenting choices. It is important to talk about how savings will be used for post-secondary expenses, what will be included in those post-secondary expenses, what the expectation is on the student to contribute, and if and how the parents will continue to save either together or independently. In spite of differences between parents, often this area is a place of agreement and shared values. I encourage parents to have their shared plans and values around their children’s post-secondary expenses included in their separation agreement. It provides a clear path forward for the family and really helps to reduce uncertainty and conflict later on.
4. Retirement and Spousal Support
Retirement usually means that a family transitions from living off of an income stream to living off of assets accumulated during their working life. It can seem like a natural conclusion that if spousal support is being paid, that support would end when the main income stream ends. Unfortunately, it is not always as straight forward as that. It may be that spousal support arrangements need to be reviewed at retirement to determine the following:
• Does a need continue
• Is there a continued ability to pay
• Is there a disparity in asset positions and income vs. non-income producing assets
• What other circumstances exist at that time that are different from when the original spousal support arrangements were put in place.
Spousal support arrangements often include balancing the respective former partners’ competing needs for flexibility in some areas and certainty in others. We can help former partners and spouses identify those needs and assign them appropriate value or weight. This allows us to craft a unique arrangement that is well suited to the individual family.
For more information on planning for retirement through relationship breakdown please feel free to contact our firm.
