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Military pension - property and income?

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  • Military pension - property and income?

    I am currently going through a separation. I also plan on retiring shortly with a federal military pension. Based on my service time and years of marriage my spouse will be entitled to about 40% of my pension. As a federal pension this will be paid as a lump sum and locked in until eligible for withdrawal.

    My understanding was that pensions were treated as property. My spouse will get half of my pension from our time together. The difference, namely 20% more for me, is based entirely on my years of service before marriage. I thought that once the pension was divided it was taken off the table.

    However, my spouse is claiming that the 20% difference, the ´tail’, is to be treated as income for spousal support calculations. Is this not double dipping, as mentioned in the SSAG and the Boston case? In effect she would getting half of my pension for my entire career, even the years we weren’t married. Can anyone shed some light, with a reference if possible? Thanks.

  • #2
    You might want to speak to someone within your pension division since technically when you divorce she is no longer your spouse and not entitled to any spousal benefits like part of your pension. If this is the case then she is entitled to the increase in value during the marriage. They will be able to help with the valuation of your pension.

    Note too that she is also entitled to a split of your cpp credits too.

    You may want to speak to a lawyer as well.

    Comment


    • #3
      Originally posted by Cs66 View Post
      Based on my service time and years of marriage my spouse will be entitled to about 40% of my pension.

      However, my spouse is claiming that the 20% difference, the ´tail’, is to be treated as income for spousal support calculations. Is this not double dipping
      Your pension has two parts

      A) 80% of it is pension credits accrued during your marriage. That will be split during equalization (which is why she gets the 40%)

      B) 20% of it is pension credits accrued before your marriage..


      If the 20% is not equalized, then why would it not be income?

      Double dipping is when the pension is equalized, and then they take the 60% of the pension you have left and call that entire thing income. Believe it or not, that actually happens in some cases.

      Comment


      • #4
        There are two reasons why I believed that this portion of the pension, I.e. the tail, or unequalized portion would not be treated as income.

        1. I brought this portion of my pension, I.e. 7 years of service or 20% of the pension, with me into the marriage. It was clearly defined, never commingled, etc. If the pension is treated as property then should this not be excluded? If this was an inheritance that was treated the same way would it not be excluded?

        2. To divide the pension, the pension administrator determines a net present value of the pension based on the future pension cash flows and an estimate of my life expectancy. Then my spouse, in this case, gets 40% as a lump sum. The remaining 60% is what is left of my pension. If my spouse then has access to part of my future pension payments, the tail, this reduces the benefit and the valuation of my pension property. Why bother with the 60/40 split if my spouse will get half of the entire pension regardless (40% lump sum and half of 20% tail)

        Comment


        • #5
          Originally posted by Cs66 View Post
          There are two reasons why I believed that this portion of the pension, I.e. the tail, or unequalized portion would not be treated as income.

          1. I brought this portion of my pension, I.e. 7 years of service or 20% of the pension, with me into the marriage. It was clearly defined, never commingled, etc. If the pension is treated as property then should this not be excluded? If this was an inheritance that was treated the same way would it not be excluded?

          2. To divide the pension, the pension administrator determines a net present value of the pension based on the future pension cash flows and an estimate of my life expectancy. Then my spouse, in this case, gets 40% as a lump sum. The remaining 60% is what is left of my pension. If my spouse then has access to part of my future pension payments, the tail, this reduces the benefit and the valuation of my pension property. Why bother with the 60/40 split if my spouse will get half of the entire pension regardless (40% lump sum and half of 20% tail)
          Not expert but it seems equitable that this "tail" really a "nose" would be valued at the date of marriage and excluded. If you owned investments on the date of marriage same treatment. But if you earned income from pre- marital investments after separation this would be line 150 income and eligible for support calculations.

          This differs as it is a right to a future income stream not an investment asset per se. You do not have a rollover right as would occur with a termination of employment so there is no cash value therefore no investment base.

          It would seem that this pension income should be excluded as it was a right to future cash payments that was earned and vested prior to the marriage.

          There must be case law.

          Try to find a CPA with specific experience in pensions and divorce. That should be less costly than a tax lawyer as family law lawyers may not have that expertise.

          Comment


          • #6
            Splitting a military pension

            I thought a military pension can only be split by Court Order or separation agreement:


            https://www.tpsgc-pwgsc.gc.ca/fac-ca...v-sep-eng.html

            Comment


            • #7
              Originally posted by Abba435 View Post
              It would seem that this pension income should be excluded as it was a right to future cash payments that was earned and vested prior to the marriage.
              I see what you are saying. However, imagine some lucky guy retires at 52. He marries at 53, and then at age 70 he gets divorced. The couple has arranged their affairs to live off of his pension. Let us for the sake of argument assume that the wife is entitled to spousal support.

              According to your proposal, the pension would be entirely excluded from both equalization AND income calculations for spousal support. His ex would be entitled to exactly zero, despite having an entitlement to support.

              Obviously, my hypothetical case is extreme. I was just wondering if you feel there would be a basis for spousal support in my example.

              Comment


              • #8
                Originally posted by Janus View Post
                I see what you are saying. However, imagine some lucky guy retires at 52. He marries at 53, and then at age 70 he gets divorced. The couple has arranged their affairs to live off of his pension. Let us for the sake of argument assume that the wife is entitled to spousal support.

                According to your proposal, the pension would be entirely excluded from both equalization AND income calculations for spousal support. His ex would be entitled to exactly zero, despite having an entitlement to support.

                Obviously, my hypothetical case is extreme. I was just wondering if you feel there would be a basis for spousal support in my example.
                Extreme hypotheticals often make the point crystallize
                Pension income qualifies for spousal support
                Convincing a court of this exclusion based on a very fine point I would expect would be nigh impossible
                And at equity likely fair to include in income.
                I did not research case law.
                Still recommend a very experienced CPA with specific knowledge or a lawyer with CPA designation again with specific experience

                Comment


                • #9
                  I would think if you could take the commuted value of your pension rather than drawing a monthly payment, you would fare better since this would be just like dividing an asset and your 'income' from it could be deferred. I assume you're relatively young and will work s few more years at a lower paid job, which likely works in your favor for support.

                  Sent from my SM-G970W using Tapatalk

                  Comment

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