RRSPs & Divorce

I’ve been getting  a number of questions lately about how RRSPs are treated during a divorce.

Although every province has slightly different divorce laws, they all treat RRSPs in a similar way.

It doesn’t matter who the RRSP or Spousal RRSP belongs to, and it doesn’t matter who actually contributed the money in the RRSP or Spousal RRSP. All RRSP contributions made during the years you were married (but not before) are considered marital property, just like your house. So they can be divided up between the two of you, or traded off against another asset.

For instance, say one partner has both an RRSP and a company pension, while the other doesn’t. If the money is close to equal, the partner with the pension could offer to give up the RRSPs in order to keep the pension for themselves.

In my own situation, I traded my share of the RRSPs for his share of the house.

Spousal RRSPs can be contentious during divorces because they belong to the spouse who’s name is on the account, not the person who contributed the money. But! Because you are getting divorced, all the money has to be counted in the communal pot.

So the contributor may, or may not, get some of their contributions back. Although, in practice, the higher earning spouse who has contributed to their wife’s or husband’s RRSP usually has a lot of RRSPs and Pension credits in their own name, so the chances of that happening in real life are pretty slim.

 

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2 Comments

Filed under How It Works, Pensions, Retirement, RRSP, Spousal RRSP, Uncategorized

2 responses to “RRSPs & Divorce

  1. L. D.

    I have substantial savings acquired over my lifetime, & my new spouse has lots of unused RRSP contribution. We will benefit financially as a couple by my putting these savings into either his RRSP or in his spousal RRSP in my name, but what happens if there is ever any marriage breakdown. Will what is, in effect, my money be split between the two of us as a result of my putting it into such RRSP’s? … or where/how could I confirm that this would not happen?

    • You need to discuss this with your lawyer. Your pre-nup (or post-nup if necessary) should lay out clearly what belonged to each of you before the marriage.

      All things being equal, the only assets that theoretically should become “family property” to be split equally upon divorce is the marital home and an assets acquired during the marriage. There are circumstances where this doesn’t apply, but your lawyer should be able to lay it out for you.

      I am concerned about the possibility that by effectively lending him the money to put into a Spousal RRSP in your name, you are taking assets that belong solely to you and making them joint marital property. Unfortunately, I do not have the legal training to give you the exact answer in this case.

      Typically a Spousal RRSP belongs to the person who’s name is on the account, however as I say in the article above, in a split the joint assets are usually totalled and split equally. This could put up to half your money at risk.

      There is also the question of who owns the tax refund. You, who gave him the money, or your spouse, who originally paid the tax in the first place which has now been refunded.

      These questions are why pre-nups are so important. It lays out who has what to start with and who is entitled to what in the long run. Horror stories about people being cut out of what they are entitled to by a pre-nup do not apply in Canada. In this country a pre-nup cannot cancel out the basic provisions of equitibility in the Family Law Act, it can only clarify and complement it.

      Hope this answer helps. Don’t rush to make a decision. Spend 15 or 20 minutes with your lawyer first.

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