What Happens to a Spousal RRSP When a Couple Separates in Ontario

A spousal RRSP is held in one spouse's name but was funded by the other. When you separate, it is natural to ask who really owns it, whether it gets split, and whether moving it will trigger tax.

This article explains the general rules in Ontario and under federal tax law. Your own answer depends on the plan, your agreement and your tax situation, so treat this as a map and not a substitute for advice.

How a spousal RRSP works

With a spousal or common-law partner RRSP, one person contributes and the other is the plan holder. The contributor claims the deduction, and the contribution reduces the contributor's own RRSP deduction limit. You can contribute to a spouse's RRSP until December of the year the spouse turns 71.

Because the account is in your spouse's name, the plan holder controls it day to day. That does not by itself answer how it is treated in a property division.

Is it divided or counted in equalization?

For married spouses, each spouse values the property owned on the separation date, less debts and excluded property, then subtracts net property owned on the marriage date. The spouse with the larger net family property pays half the difference as the equalization payment.

So the usual approach is not to cut the account in half. It is to count its value as part of each spouse's property and settle the difference. How the account is valued, and whether any adjustment is made for the tax that would be payable on withdrawal, depends on the facts and is worth confirming with a lawyer or accountant.

• Common-law couples are not legally required to split property acquired while living together, though they may recover contributions to the other's property, sometimes through court.
• A court claim for an equalization payment must be started within six years of separation or two years after the divorce is final, whichever comes first.

Moving the RRSP tax-free

On marriage or common-law breakdown, RRSP property can be transferred tax-free to the spouse's or former spouse's RRSP or RRIF. You must be living separate and apart, and the transfer must be made under a court order, judgment or written separation agreement.

This is why the wording of your separation agreement matters. If you want an RRSP transfer to balance out an equalization payment, the agreement or order should say so clearly, and the transfer should follow its terms.

The attribution rule on withdrawals

If the contributor paid into any spousal RRSP in the year of withdrawal or the two preceding years, the withdrawal may be taxed to the contributor, and Form T2205 is used. The window of contribution years moves forward each tax year.

Whether a particular withdrawal qualifies for these exceptions depends on the dates and facts, so confirm it with an accountant before you take money out.

What to do next

• Get recent statements for every RRSP and RRIF, showing who contributed and who holds the plan.
• Record the separation date, since valuation and the attribution exception both depend on it.
• Ask a lawyer how the account should be valued and whether tax should be taken into account.
• Make sure any transfer is written into a court order, judgment or separation agreement before it happens.
• Ask an accountant to check the tax effect of any withdrawal or transfer.

Frequently asked questions