What Happens to CPP When a Couple Separates?
CPP or Canada Pension Plan is the accumulation of credits, dependent on a taxpayer’s annual earnings. It is a taxable pension benefit that you can receive beginning as early as age 60 (though you choose when to begin receiving CPP), or as late as 70. The amount you receive each month is based on your average earnings throughout your working life, contributions to CPP and the age you begin collecting it.
In separation and divorce, Canada Pension Plan division is an issue dealt with separately from the division of assets and debts and often not given much air time. CPP credit splitting, as it is referred to, can be addressed only for the time that two partners/spouses lived together.
In most provinces, either partner/spouse can apply for the split and the number of credits you each accumulated during the cohabitation period will be divided equally. Generally, a written agreement does not prevent one party from still applying for the split. There are only 4 provinces that have provincial laws (Alberta, Saskatchewan, BC and Quebec) allowing couples to agree not to split their credits.
For married couples, there is no time limit on when you can apply for the CPP credit split post-separation unless your ex-spouse dies in which case you must apply within 36 months of the death. Common-law partners must apply within 48 months after separation otherwise your partner has to agree to waive the 48-month time limit.
How does it work?
For the period of cohabitation, the earnings of each partner/spouse for each year of cohabitation, are added together and divided by 2. For the purposes of computing the annual CPP benefit down the road, the CPP benefit determination will be based on the newly divided earnings rather than the actual earnings of each partner/spouse in each year of cohabitation. This credit split is a permanent change to both party’s record of earnings.
The less that one partner/spouse worked compared to the other, the greater the impact on each party. The amount of any CPP that either may be eligible for in the future will be based on the revised earnings.
The impact of a credit split can vary considerably depending on your situation.
At Alberta Divorce Finances we educate our clients on the CPP credit split and all other financial and tax issues that will be affected by your separation; we bring financial clarity to separation and divorce.
Reach out to us at Sharon@AlbertaDivorceFinances or (403)703-7176
