Are RRSPs and Pensions Included in Equalization in Ontario?

If you are separating, you may be wondering whether the RRSP in your spouse's name, or your own, is part of the picture. The short answer is usually yes.

This article explains how RRSPs, savings and pensions are counted, what documents you will need, and how money can be moved between spouses on a separation. It is general information, and the tax side in particular is worth confirming with an accountant or lawyer.

How RRSPs and savings count in equalization

Under the Family Law Act, net family property is the value of all property a spouse owns on the valuation date, except excluded property. Debts and other liabilities are deducted, along with the net value of certain property owned on the date of marriage.

Property is defined broadly. It covers any present or future, vested or contingent interest in real or personal property. In plain terms, an RRSP, a bank account, investments and a pension interest are all the kind of asset that gets counted.

The spouse with the lower net family property is entitled to one-half of the difference between the two when a divorce is granted, a marriage is declared a nullity, or the spouses separate with no reasonable prospect of resuming cohabitation. If a spouse's net family property comes to less than zero, it is treated as zero.

Which date is used, and what you must prove

Values are fixed at the valuation date. That is the earliest of five dates, including separation with no reasonable prospect of resuming cohabitation, the date a divorce is granted, and the day before a spouse dies.

If you claim a deduction or exclusion, you carry the onus of proving it. Some property acquired after the date of marriage is excluded, such as gifts or inheritances from a third person, and damages for personal injuries and life insurance proceeds are also excluded, although the gift and inheritance exclusion does not apply to a matrimonial home. Money put into a matrimonial home loses that protection.

Money held in both names needs care. Property held in both names as joint tenants is presumed to be jointly owned, and money on deposit in both names is treated as held in joint tenancy. Money one spouse gives the other may be presumed to be held for the giver.

Whether the value of an RRSP should be reduced for the tax that would be payable on cashing it in is a valuation question. The answer depends on the facts and the evidence, so it is worth raising with a lawyer or accountant.

Pensions are handled differently

For a pension plan, the imputed value of a spouse's interest is determined under the Pension Benefits Act. For other pension plans, the same method is used where reasonably possible.

An order may provide for an immediate lump-sum transfer out of the plan. If the pension is already being paid on the valuation date, it may divide the payments. Other ways of dividing the plan interest are generally not permitted, and the court considers factors such as how liquid the lump sum will be for the receiving spouse.

There is a cap. An order, award or domestic contract is not effective to the extent it gives the other spouse more than 50 per cent of the imputed value of the pension.

Federal and some other pension plans follow their own rules, so check which law governs the plan.

Moving RRSP money between spouses

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 on breakdown of the relationship.

For a tax-free transfer, the transfer must be direct. The recipient must be entitled under a decree, order or judgment of a competent tribunal, or a written agreement dividing property. For unmatured plans, the spouses must be living separate and apart at the time of the transfer. If the holder withdraws the money and pays it to the spouse, the amount is taxable income to the holder in the year received.

Transfers of other capital property, such as a house or shares, to a spouse or former spouse in settlement of rights arising from the relationship generally roll over at the transferor's adjusted cost base, unless the transferor elects out. This applies only if both people are resident in Canada at the time of the transfer.

What to do next

If you have a property claim, you must serve and file a financial statement, and for property claims the form is Form 13.1. Supporting documents, including account and investment statements issued closest to the valuation date, are due within 30 days after the financial statement is due.

• Gather RRSP, RRIF, pension, bank and investment statements, especially those closest to the valuation date.
• Find records for the date of marriage and any gifts or inheritances you want to exclude.
• Do not withdraw registered plan money to pay a spouse before getting tax advice.
• Correct any disclosure that turns out to be wrong as soon as you find out.
• Check time limits early, since an equalization application must be brought by the earliest of two years after a divorce or nullity, six years after separation with no reasonable prospect of resuming cohabitation, or six months after the first spouse's death, though a court may extend the time if there are apparent grounds for relief, the delay was in good faith and no one will suffer substantial prejudice.

Full disclosure matters. A court may set aside a separation agreement if a party failed to disclose significant assets or debts that existed when it was made.

Frequently asked questions