Death, Divorce, and Bankruptcy
There is a wise old saying – "Hope for the best, but plan for the worst.” In other words, sometimes in life the unexpected can happen, including such things as death, divorce, and bankruptcy. The following section outlines the potential outcomes of these unexpected events as they can impact your LIF.
In the event of your death, the assets held in your Life Income Fund (LIF) will transfer to the beneficiary you have designated in the LIF account documentation. Federal pension legislation requires that your LIF assets are used for the benefit of your surviving spouse or common-law partner, unless they have waived their entitlement as your surviving spouse.
If your named beneficiary is someone other than your surviving spouse or common-law partner, then the beneficiary can only receive your LIF assets provided that your surviving spouse or common-law partner have waived their spousal entitlement in the form and manner as set out in the Pension Benefit Standards Act (PBSA).
If you have no surviving spouse or common-law partner at the time of your death, and you fail to appoint a beneficiary of your LIF assets, then the LIF assets will be paid to your estate and dealt with according to the instructions contained within your will.
Divorce (or partnership break down)
If your marriage or common-law partnership breaks down, your Locked-In Retirement Savings Plan (LIF) is subject to any applicable provincial property laws. The Pension Benefits and Standards Act (PBSA) allows the division of the LIF assets by court order or written agreement, that person becomes entitled to their portion of the LIF upon presentation of the court order or written agreement to the financial institution administering the account.
Any amount transferred to a former spouse or common-law partner continues to be subject to the federal locking-in rules.
In the case of bankruptcy, the assets held in locked-in accounts are safe from the claims of creditors. However, a creditor could seize the monthly or annual payments from an LIF, Restricted Life Income Fund (RLIF), or an immediate Life Annuity. Furthermore, unlocked amounts (even those held in an RRSP or RRIF), may be subject to the claims of creditors as they lose the protection offered under the PBSA, 1985.