What happens to RRSPs when married spouses separate in Ontario?

In Ontario, RRSP balances are included in the net family property calculation for married spouses. The value of each spouse's RRSP on the date of separation counts as an asset, and the value on the date of marriage is a deduction. Only the growth during the marriage factors into equalization.

When a separation agreement requires one spouse to transfer RRSP funds to the other as part of equalization, there is a tax-sheltered way to do this under federal income tax rules. A direct transfer between spouses' registered accounts does not trigger an immediate income tax hit — the funds are transferred without the usual withholding tax that applies to regular RRSP withdrawals. This is called a spousal RRSP rollover or a transfer pursuant to a separation agreement, and it requires the couple to be separated, have a written agreement, and follow the CRA's specific process.

If the RRSP funds are cashed out rather than transferred directly, the withdrawing spouse will pay income tax on the full amount — an outcome both parties usually want to avoid.

Make sure any RRSP transfer is done in accordance with the CRA rules and coordinated with the financial institutions involved. A tax professional or financial advisor can help structure this efficiently.