How Are RRSPs and Investments Divided on Separation in BC?

You or your spouse have RRSPs, a TFSA or investment accounts, and you are trying to understand what is shared. Many people assume that an account in one name belongs to that person alone.

In British Columbia, that is not how it generally works. This article explains how these accounts are treated, how they are valued and divided, and where tax questions arise.

This article covers the law of British Columbia.

Whose name is on the account does not decide

Family property is everything the spouses own separately or together on the date of separation, and it does not matter whose name it is in. The Family Law Act specifically includes shares or interests in a corporation, partnership or business, money in a financial institution account, and a spouse's entitlement under an annuity, pension, retirement savings or income plan.

Unless an agreement or order says otherwise, spouses are equally entitled to family property, and on separation each holds an undivided half interest as a tenant in common. RRSPs, investments and bank accounts are all given as examples of family property.

What may be excluded

Some assets may be excluded property, including property acquired before the relationship began, inheritances, gifts from a third party, and property derived from any of these. If you say an account is excluded, you are responsible for demonstrating that.

For example, an RRSP you held before the relationship may have a part that is excluded, while the growth during the relationship is a different matter. The increase in value of excluded property since the relationship began is itself family property and is shared. How to trace and separate contributions and growth in a mixed account can be technical, so keep statements from before the relationship.

Valuing and dividing the accounts

The process is to identify what each spouse owns at separation, identify family debt, value the property at fair market value, then divide equally unless an agreement or a significant-unfairness order applies. Unless an agreement or order says otherwise, value is measured as of the date of the dividing agreement or the court hearing, not the separation date. Ownership, however, is fixed as at separation.

Investments rise and fall, so the court can adjust for a post-separation change in value beyond market trends that was caused by a spouse. It can also divide unequally where a spouse substantially reduced property value or disposed of or converted property other than in good faith.

Pensions and locked-in accounts

Pension interests that are family property are divided under Part 6 of the Act unless an agreement or order provides otherwise. Methods include transferring a defined contribution account to the spouse's own account, a separate pension or a commuted-value transfer for some benefit-formula plans if the plan allows, and a share of payments after the pension starts. LIRAs and LIFs can be transferred.

A spouse can be designated a limited member of the plan, and the plan administrator acts only after receiving a copy of the agreement or order and the required notice. The member does not need the spouse's consent to proceed.

Tax on transfers and withdrawals

Moving money out of a registered account or selling investments can have tax consequences. The Act lets the court consider tax liability from a transfer, sale or order when deciding whether an equal division would be significantly unfair. Which transfers can be made without tax, and how withdrawals are taxed, depends on the type of account and your situation, so confirm it with an accountant or lawyer before you move anything.

To give effect to a division, a court can order a transfer, compensation, a sale, or security. Spouses can also agree in writing to divide property equally or unequally, and a court cannot override a written, witnessed agreement unless it is set aside.

What to do next

If you start a court claim for property division in Supreme Court, you must file a financial statement in Form F8 under Rule 5-1. Provincial Court cannot divide property under Part 5. Disclosure matters: the court can order a party to disclose information, and if information is incomplete, false or misleading, it can draw an adverse inference or impose other consequences.

• Gather statements for every RRSP, TFSA, investment and bank account, current and as at separation
• Collect tax returns for the three most recent years and notices of assessment
• Find statements from before the relationship for any account you say is excluded
• Do not move or cash out funds before getting tax advice
• Note the 2-year time limit, which runs from the divorce judgment for married spouses or from separation otherwise

Frequently asked questions