A pension split is a situation in which a party arranges to split his pension income with another person. Often, this occurs when a person has to share his pension with his spouse, such as when a couple decides to divorce. Sometimes, however, this type of split involves income taxes rather than an actual split of money. The steps required to accomplish a pension split usually depend on the type of split in question and the jurisdiction. In most cases, however, parties can complete pension splits by preparing required documentation and filing it with the appropriate organization, such as a pension plan administrator or a tax agency.
In some jurisdictions, a pension split is performed for income tax purposes. For example, in Canada, a person can split up to half of his pension income with his spouse or common law partner. Interestingly, this type of pension split does not involve transferring any funds to the other person. Instead, a party simply allocates part of his pension income to his spouse or common law partner on his tax return. The purpose of this is to decrease his taxable income and add the income onto the tax record of the spouse that falls in the lower tax bracket.
Another type of pension split is a situation in which one spouse does actually share his pension with another. This often happens in the case of a divorce. In jurisdictions in which pensions are considered marital property, a person might have to share part of his pension with his spouse when they divorce, without regard to whether or not he wants to do so. If the divorcing spouses cannot agree on how to split the pension and other marital property, a judge will typically make the decisions for them as part of the divorce proceedings.
The steps a person has to take to initiate a pension split typically depend on the jurisdiction and the type of pension split he is hoping to accomplish. In most cases, there are forms to complete for a pension split. For example, in jurisdictions that allow pension splitting for the purpose of income tax savings, both parties usually have to sign a form and attach a copy of it to their individual tax returns. When a pension is split during divorce proceedings, however, it is often necessary to provide the pension plan administrator with documentation to initiate the splitting of the funds.