Spousal RRSP and Divorce in Ontario: Who Owns the Money?

A spousal RRSP can leave couples unsure about who really owns the money. One spouse (the contributor) puts money in, and the other (the annuitant) holds the plan and withdraws from it later. When the relationship ends, both people want to know whether the account is shared, who pays tax on a withdrawal, and whether it can be moved.

This article explains the general Ontario and federal rules in plain language. Every family's numbers and history are different, so treat it as a starting point and confirm the details with a lawyer or accountant.

Why a spousal RRSP raises special questions

In a spousal RRSP, the contributor puts the money in and the annuitant is the one who holds the plan and withdraws from it later. The catch is a tax rule that can send the tax back to the contributor if the annuitant withdraws too soon. That rule is why separation changes the picture.

There are really two separate questions. The first is a family law question: how is the plan valued and shared between the spouses? The second is a tax question: who is taxed when money leaves the plan or moves between plans?

How the plan is treated in property division

Under Ontario's Family Law Act, the spouse whose net family property is smaller is entitled to one-half of the difference between the two spouses' net family properties. Net family property is the value of property a spouse owns on the valuation date, minus debts and permitted deductions, and it is never less than zero. RRSPs and pensions are counted as property.

The valuation date is the earliest of several dates, and one of them is the date the spouses separate with no reasonable prospect of resuming cohabitation. That is why the date of separation matters for the value of the plan.

Some property is excluded from net family property, such as gifts or inheritances from a third party received after the marriage (other than a matrimonial home) or property excluded by a domestic contract, but the person claiming an exclusion must prove it. A court may also award more or less than half the difference if equalizing would be unconscionable. How a particular spousal RRSP fits into these rules depends on the facts, including how and when it was funded.

Time limits apply. An equalization claim must generally be made by the earliest of two years after a divorce or nullity judgment, six years after separation with no reasonable prospect of resuming cohabitation, or six months after the first spouse's death. The 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.

Moving RRSP money between spouses

RRSP funds can be transferred directly, without immediate tax, to an RRSP or RRIF of a spouse, common-law partner or former spouse or partner. The couple must be living separate and apart, and the transfer must be made under a court order or a written separation agreement dividing property on the breakdown of the relationship. The CRA reports this transfer on Form T2220.

A direct transfer is different from simply withdrawing cash and handing it over. How a withdrawal made outside a court order or written agreement would be taxed depends on your situation, so it is worth speaking with an accountant before any money moves.

The attribution rule and separation

When the annuitant spouse withdraws from a spousal RRSP, the contributor may have to include the amount in income, up to what the contributor paid in that year or the two preceding years.

There are exceptions. Attribution does not apply if, at the time of the withdrawal, the spouses are living separate and apart because of the breakdown of their marriage or common-law partnership. Other exceptions include the year of the contributor's death and where either spouse is a non-resident.

Living apart under one roof is a grey area. No fixed test is set out for that, and courts look at the facts, so get advice before relying on that exception.

Putting it in writing and what to do next

A separation agreement is a domestic contract. It is unenforceable unless it is made in writing, signed by the parties and witnessed. It may cover property, support and parenting. A court may set aside a domestic contract, or a provision in it, if a party failed to disclose significant assets, debts or other liabilities, did not understand its nature or consequences, or on contract-law grounds.

• Note the date you separated and keep it consistent in your paperwork.
• Get current statements for every RRSP, including any spousal plan, and gather records of who contributed and when.
• Ask an accountant how a withdrawal or transfer would be taxed before you move any funds.
• Make sure any agreement dividing the plan is in writing, signed and witnessed.
• Ask a lawyer to confirm how the plan fits into your equalization calculation.

Frequently asked questions