Spousal RRSP and Divorce in Ontario: Ownership and Tax

A spousal RRSP is set up so that one spouse contributes and the other is the planholder. When the marriage ends, people often ask who gets the money, how it counts in the property division and whether moving it between spouses triggers tax.

This article explains the Ontario property rules that usually apply and the tax-deferred transfer that the CRA allows. The answers turn on the plan terms and your facts, so treat this as a starting point.

Who owns the plan

Net family property is based on the value of all property a spouse owns on the valuation date. So the starting question is whose plan it is. Check the plan documents and account statements to see who is named as the planholder, who contributed, and what the plan type is.

The contributor and the planholder are not always the same person, and the result can depend on the plan's terms and the tax rules. A lawyer or accountant can confirm how your plan is treated before you rely on any assumption.

How it counts in equalization

Net family property is the value of all property a spouse owns on the valuation date, minus debts and the net value of property owned on the marriage date. It is never less than zero. The valuation date is the date of separation with no reasonable prospect of living together again, or the divorce date if earlier.

The spouse with the smaller net family property is entitled to one-half of the difference between the two. That is the equalization payment.

Some property is left out, including gifts or inheritances from a third person after the marriage (other than a matrimonial home), personal injury damages, life insurance proceeds, property traceable to these, and property excluded by a domestic contract. A court can also award more or less than half if equalizing would be unconscionable.

Pension rights are valued at the imputed value, for family law purposes, of the spouse's interest in the plan from the marriage to the valuation date. How an RRSP is valued for this purpose, including any allowance for tax, depends on the facts, and a lawyer or valuator can advise.

Moving the RRSP to the other spouse without tax

An unmatured RRSP can be transferred to a current or former spouse's plan on Form T2220 when the spouses live apart because of a breakdown and the transfer is under a court order or written separation agreement. No deduction is claimed and nothing is reported for the transfer.

• The plan must be unmatured.
• The spouses must be living apart because of a breakdown.
• The transfer must be under a court order or written separation agreement.
• The money goes into the other spouse's plan on Form T2220.

Because the rule calls for a court order or written separation agreement, it is worth having that document in place before any money moves. Whether a transfer suits you depends on the amounts and the other assets involved.

Other tax points on separation

Under the CRA's rule, you are separated once you have lived apart because of a relationship breakdown for more than 90 days. Report the change by the end of the month after your status changed, through My Account or Form RC65. Benefits are adjusted from the month after the change.

If you pay support under a court order or written agreement, it is reported on line 21999. Only the deductible part, spousal support, goes on line 22000, and child support is not deductible. Legal fees for a separation or divorce, for setting support or for custody cannot be deducted on line 22000, 22100 or 23200.

For other property, when capital property is transferred to a spouse living apart after a breakdown, the transferor may avoid reporting the gain or loss when the spouse later sells it, but must file an election with their return.

Deadlines and next steps

An equalization claim must be started by the earliest of 2 years after the divorce, 6 years after separation with no reasonable prospect of living together again, or 6 months after the first spouse's death. Do not let the plan paperwork delay a claim.

• Collect plan statements showing the planholder, contributions and current value.
• Note your valuation date and the value of the plan on that date.
• List your other property and debts so the full calculation can be done.
• Ask a lawyer how the plan should be valued and who should receive it.
• Ask an accountant about Form T2220 and the tax effect of any transfer.
• Make sure the transfer is written into a court order or separation agreement.

Frequently asked questions