Dividing RRSPs and Savings on Separation in Ontario

When a marriage ends, retirement savings are often the biggest asset after the home. Many people are unsure whether an RRSP is shared, how its value is worked out, and how to move money between spouses without an unexpected tax bill.

This article explains how Ontario's Family Law Act treats RRSPs and other savings, what disclosure to expect, and how a tax-free transfer on relationship breakdown generally works. Tax valuation questions are fact-specific, so an accountant and a family lawyer are worth consulting.

How RRSPs and savings fit into property division

Ontario does not divide each asset down the middle. Instead, each spouse's net family property is calculated, and the spouse with the lower amount is entitled to one-half of the difference when there is a divorce, a nullity or a separation with no reasonable prospect of resuming cohabitation.

Net family property is the value of all property a spouse owns on the valuation date, less debts and other liabilities and less certain property owned on the date of marriage. Property is defined broadly, covering present or future, vested or contingent interests in real or personal property. An RRSP, a savings account and an investment account all fit within that wording.

The valuation date is the earliest of several events, most often the date of separation with no reasonable prospect of resuming cohabitation. The balance on that date is what generally matters, not the balance today.

Valuing an RRSP and the tax question

The balance shown on a statement is the starting point, but spouses sometimes disagree about whether the value should be reduced because tax will eventually be payable when the money is withdrawn. Whether any reduction is appropriate, and by how much, depends on the facts, such as the plan, the holder's circumstances and what the spouses agree. An accountant can help estimate it, and a lawyer can explain how it may be argued.

If you owned an RRSP on the date of marriage, you may be able to claim a deduction for its value then. The spouse who claims a deduction or exclusion has the onus of proving it. Keep the earliest statements you can find.

Pensions are treated separately from RRSPs. For a workplace pension plan, the imputed value is determined under the Pension Benefits Act, and an order cannot give the other spouse more than 50 per cent of that imputed value.

Moving RRSP money without tax: the direct transfer

CRA Form T2220 is used to transfer all or part of an RRSP or RRIF directly to the current or former spouse's or common-law partner's RRSP or RRIF when the relationship breaks down.

CRA's guide T4040 sets conditions for the transfer to be tax-free:

• The transfer must be direct from one plan to the other.
• The recipient must be entitled under a decree, order or judgment of a competent tribunal, or under a written agreement dividing property.
• For an unmatured plan, the spouses must be living separate and apart at the time of the transfer.

If these conditions are met, the amount is not included in income. By contrast, if the RRSP holder withdraws the money and pays it to the spouse, the amount is taxable income to the holder in the year it is received.

For a spousal RRSP, the rule that attributes withdrawals back to the contributor does not apply if the spouses were living separate and apart at the time of payment because of the breakdown of their relationship.

Joint savings, disclosure and hidden money

Money in an account held in both names is treated as held in joint tenancy, and property held in both names as joint tenants is presumed to be jointly owned. Even so, each spouse's share of the balance still goes into the net family property calculation based on what the spouse owns on the valuation date.

Both sides must exchange financial information. In a property claim, a party must serve and file a financial statement, which is Form 13.1 for property claims. Within 30 days after that statement is due, a party to a Family Law Act Part I property claim must serve supporting documents, including account and investment statements issued closest to the valuation date. A party who finds an error in a served document must promptly serve the corrected information.

If disclosure is missing, the court may order it and must also order costs against the party who failed to provide it. A separation agreement may be set aside if a party failed to disclose significant assets, debts or other liabilities that existed when it was made. Where there is concern that money is being moved, a court can make orders restraining the depletion of a spouse's property.

Unmarried couples and next steps

Equalization applies only to a spouse as defined in the Family Law Act, which does not include unmarried cohabitants. For common-law couples, property generally belongs to whoever bought it, although a partner who contributed to the other's property may have a claim. The CRA transfer, however, is described as available for a current or former spouse or common-law partner.

• Identify your valuation date and gather RRSP, TFSA and bank statements closest to it.
• Find statements from the date of marriage for any account you owned then.
• Ask an accountant how tax should be considered in valuing the plans.
• Make sure any agreement is in writing, signed and witnessed.
• Use a direct transfer, not a withdrawal, and confirm CRA's conditions are met before moving money.

An equalization application has time limits, including six years after separation with no reasonable prospect of resuming cohabitation. Getting advice early helps you stay within them.

Frequently asked questions