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CPP Credit Split

CPP Credit Split

Is Timing Critical for a CPP Credit Split? Does it Really Matter When You Apply?

Image from Feldstien Law Office

In divorce negotiations, most couples do not spend much time negotiating or discussing a CPP Credit Split. 
 
CPP contributions that Parties contribute to Canada Pension during their relationship can be equalized upon separation and divorce. Credits can be divided even if one spouse or common-law partner did not make contributions. Credit splitting may help one party qualify for benefits and can affect the amount of any current or future benefits under the CPP program for both Parties.
 
The provinces of Alberta, Quebec, Saskatchewan and British Columbia have 'Spousal Agreement' whereby a provincial law permits couples to agree NOT to equalize their CPP contribution credits; generally, a spousal agreement does not prevent a CPP credit split though.
 
If a party does not apply for the CCP credit split within 36 months after the end of their marriage, their pension credits can still be divided only if their former spouse is still alive and agrees in writing to waive the 36-month time limit (in our experience, none of our clients waiting to apply for the split beyond the 36 month time limit have ever been required to obtain additional written agreement as the divorce judgement/separation agreement is usually upheld in its place).
 
Otherwise, there is no time limit to apply, unless a spouse dies in which case application must be made within 36 months of the date of death.

IMPORTANT: In recent conversation with our actuarial colleagues, we were discussing pensions, CPP and the like. It became apparent to us that in the case of one spouse being significantly older than the other spouse especially in a longer term marriage, it would likely be very worthwhile for the younger spouse to delay application for the CPP Credit Split. Let's look at an example:

Mary and Joe have been married for 25 years; Joe is 60 and Mary is 50 and has only ever worked very part-time (less than 10 hours per week). The Parties have recently negotiated a separation agreement and made application for divorce. Joe would like to begin taking his CPP within the next year or two. If Mary proceeds with a CPP credit split today, Joe's CPP pension payment will be significantly reduced, in this couple's case because Mary has applied for the split and their credits will have been equalized and Joe's annual pension from CPP will be based on his revised credits. If Mary waits 10 years until she is 60 to apply for the CPP credit split, Joe will receive his full CPP pension (based on beginning at age 60) for the next 10 years. Mary can apply shortly before she is 60 when she wants to begin receiving CPP and at that time, the exact same CPP credit equalization will be calculated as would have been 10 years prior (because it is only based on credits accumulated during relationship). Thus, Joe will not begin receiving his reduced CPP until he is 70 and Mary will receive the exact same amount beginning at 60 whether she had applied 10 years prior or not (even though she didn't want to begin receiving it then).
 
Thus, it may be very beneficial for the older spouse to negotiate for delaying application of the CPP credit split especially in situations where parties like Joe will depend heavily on their CPP income. 

If there are any questions or concerns or you require assistance determining how beneficial this delay may be, email Sharon@AlbertaDivorceFinances.com or call (403)703-7176.