Reader Question:Do I Have To Share My RRSP With My Spouse When I Get Divorced?

Another reader of the Canadian Budget Binder blog asked the question, Do I have to Share my RRSP with my Spouse When I get Divorced”?

In Ontario there is the Family Law Act. In simple terms all property acquired after the date of marriage, up until the time of marriage breakdown is deemed to be the property of both parties. The ownership of the property is not a factor. So in short each person is entitled to 50% of the total family property.

There are certain exceptions like the family home that was brought into the relationship or received as a gift or inheritance. However to keep things simple we will ignore this.

RRSP’s, Stocks, Bonds, Pensions, are all subject to being included under Family Law. So if one spouse had a significant RRSP and the other nothing then the spouse with nothing would be entitled to 50% of the spouse’s RRSP.

Note: the courts adjust the value of the RRSP down, by the amount of withholding tax that would be payable if the RRSP were cashed in. So the figure used is less than fair market value of the RRSP.

To understand this fully the courts ask each person for a statement of assets and liabilities at time of marriage and time of marriage breakdown.

In effect they are doing a net worth statement at two points in time. This is known as net family property (NFP) and the spouse with the RRSP would include it as part of their NFP.

The spouse with the higher NFP would then be required to make an equalization payment to the other spouse so that both share 50-50.

This payment does not have to come from the RRSP or a transfer of the RRSP to settle the payment obligations. It can actually come from any assets owned by the individual with the higher NFP.

Hopefully this gives you some insight on your question about an RRSP and Divorce. To learn more about Family Law, Division of Assets and calculation equalization payments visit Feldstein Family Law Group .

Every attempt has been made to be accurate but Errors and Omissions Excepted.

Have you been through this experience? What did you learn?-Mr.CBB

 Gary Gorr

Guest Post: About Gary Gorr: What kind of written plan do you have for retirement that ensures you won’t outlive your money? I help people answer that question Contact Information: (905) 202-8430 ext.626 ggorr@ifcg.com or you can follow my blog at Gary’s $$$ and Sense 

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My Biggest Money Mistake-Co-Signing and Taking On Debt

Money Mistakes aren’t always in your face but we learn from these mistakes to make it right the next time. There are many reasons people fall into debt but there are more reasons about why they should get out of debt even if that means fighting for your legal rights. You don’t need to make millions to use a budget but you do need to see the numbers.

One of my fans contacted me with a story she wanted to share about her biggest money mistake. Not everyone is willing to step up to say “this is what happened” and “this is what I had to do to fix it“. Julie took steps to get back on track and I hope others can learn from her story and not be taken advantage of. Take your failures and make them a success story like Julie.

Here is Julie’s Story……

Hello Mr. CBB!

When I separated from my ex-husband, I had to file for bankruptcy. I wasn’t mismanaging funds but what landed me in hot water was failure to protect myself from love and money. This chapter in my life has taught me to become fairly self-reliant whilst living on no credit. Great lessons learned and I vowed to never be in that place again so please enjoy my story and I hope that others can learn something from what I had to go through. My money mistake may be your success.

THE BEGINNING

I met a guy….isn’t that how a lot of these stories begin!!

THE TIME OF OUR LIVES

We were together a few years and it blossomed into something special between the two of us, so I thought. We seemed to be headed in the same direction, we got engaged and then began planning our wedding. We wanted to spend the rest of our lives together.

THE MONEY

His credit history was not the best in fact it was so bad I had to step in like a warrior to conquer the matter. Money fights and money problems in relationships happen so I decided to save the day and potentially avoid this. In an effort to help him to start building up his credit score I rolled it into my mortgage to help clear up his debt. I guess that’s what you do when you are in love and think you will be with someone for the rest of your life, so I thought. Thankfully, a small part of me was in protection mode so I was adamant that he was not put on the title for the house. The title for those that don’t know means that I was the owner of the property and not him. Instead he was the guarantor meaning that he guarantees that the debt would be paid. This is how the birth of our Line Of Credit (LOC) began for us.

Since I was in love with this man I bent over backwards for him with rose-coloured glasses on. Amazing what we do for love with money. I even went as far as co-signing for a truck lease simply because my credit history was in perfect health.  You have to understand though that when you co-sign for anything you are saying that you agree to pay the borrower’s debt if the borrower fails to.

If you are not prepared to do this at any stage do not, and I repeat do not co-sign as it is a legal agreement that you are responsible for in the event it is not paid. That’s alot of weight to carry around for someone especially if you need credit for yourself so you risk your own credit and finances.

A FEW MONTHS LATER WE HIT A BRICK WALL

A few months after all the finances were in order everything began to fall apart. This is sort of like you worst nightmare coming to life, something you would never expect. I inadvertently to my horror found out he was leading a double life. While I thought he was off working hard in Manitoba for us, he was actually living with another woman. He was cheating on me and I had to wrap my head around all of this news. He had purchased big-ticket items with her and was living the happy life. Who does this? Why me? Lots went through my mind but I had to stay focused on not only my emotions but financial matters.

How did I know all of this? Well, conveniently the paperwork came to my house. There are no words to describe my feelings but what is done is done. The lessons are piling up here now but I’m taking it all in stride.

LEGAL MATTERS

Ultimately I was left to deal with the fact that He was gone, but the debts remained. I would have walked away from it all if it were a couple of thousand dollars, but that wasn’t the case here.

I waited about a year before I began legal proceedings against him. Canadian Small Claims Court was out of the question because of the amount of money he owed me. In order to file in Small Claims Court the amount has to be less than $5000 to fall under small claims in every jurisdiction in each province.
I needed to find the best legal representation so I hired a good lawyer and I did a lot of the leg work to save some money in legal fees.

THE  LEGAL PROCESS

A demand letter was sent to him but he had ignored it. I had proof that I was communicating with him via email, so we were able to serve him the Statement of Claim via email. The Statement of Claims details the reason for filing legal action with all the detailed finance information. He didn’t defend the case so I received a Judgement for the full amount he owed me plus costs and registered a Writ of enforcement all of which will show up on his credit report. Not surprisingly he vanished so the full amount of the judgement was still left unpaid.

I ended up conveniently locating  his bank account information and the lawyer garnished the account meaning money would be seized. If your employer receives a notice from the courts to withhold a certain amount of money they have to abide by this. Guess who’s in contact with me and making regular payments to his debt now! This entire process from start to where I am today has taking me a grueling almost 4 years.

The one good thing about this loan is that the minimum payment required was interest only. This gave me the ability to still pay it without causing any damage to my credit history or my monthly budget.

THE TRUCK

Regarding the truck lease, around the same time as everything else went south, he decided not to pay this regularly or the amount he was obligated. The financing company called me often looking for him or the truck. I was always polite but insisted that I didn’t have the vehicle, so I wasn’t paying for it. Find him, find the truck but it’s not my problem. I shared information if and when I learned something new. I advised them where he lived and when the arrears got high enough, they finally repossessed the vehicle. He paid what he needed to catch up with the payments and get it back. The lease is done now and the truck was returned to the truck dealer. Inside It felt like that was the longest leasing contract EVER!

THE DAMAGE TO MY CREDIT

This debt has damaged my credit. Luckily, I have been with my employer for 24 years and my banker knows about the situation. Should I require financing in the near future, which I don’t expect to, I can at least provide an explanation. It’s the only debt showing on my credit report, everything else is perfect. Eventually, that debt will drop off and the next chapter of my life and my credit score will be perfect once again!!

WHAT I LEARNED FROM MY BIGGEST MONEY MISTAKE

My biggest regret in this entire situation, was not following my gut and recognizing the red flags. I did take steps to protect myself, but not enough. I was lured in by love and promises  and taken advantage of by a guy who does this on a regular basis. I am proud to say that I stood up for what was right and am the only one of his victims that have come forward to take him to the cleaners. You can bet I’ll never, ever do this again.

It is not my responsibility to clean up my partner’s financial mess (at my expense). EVER! I actually dod recover well from my divorce and bankruptcy.
I managed to budget well enough that this didn’t do unrepairable damage to me, my kids or our budget. Do have and maintain a good relationship with your Banker, they can be your biggest ally when needed. I’m not as big of a  pushover as people thought. I fought back and I won!

My biggest lesson, life does go on and you figure it out. I crawled back out of the hole of feeling shamed and used. I found love with someone I have known for over 20 years and got married on Sept 16 of this year.

My Life is perfect again and my biggest money mistake is behind me.

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Rebuilding Life and Finances After Surviving A Divorce

Rebuilding life and finances after surviving a divorce can be a long road but the road has to start somewhere. When we get married it’s supposed to be for life, in sickness and in health, for richer or poorer but we know actions speak louder than words.

We live our lives as if tomorrow will be the best day we have ever lived until a marriage breakdown occurs. Money fights and Money problems being the top reason people divorce yet this is something that doesn’t really need to happen.

With the rising cost of living and families turning to credit and spending more than they earn thus keeping some in debt denial it’s no surprise marriages fail. The walls are crumbling for some couples faster than they are being built.

Most families need two incomes just to keep the roof over their heads, food on the table and clothes on their children’s backs. People are struggling to find work after massive lay-off’s, disabilities and upon graduating University and College. If you think acting like Mr and Mrs. Money Bags is the best way to be the talk of your friends, think again.

Not all divorces end because of money and really no one can say what is right and wrong but we do know that money is the root of all evil and can break relationships in half whether it be a marriage, friendship or relations with family.

We can all work on our finances by controlling our spending by budgeting and always having an emergency savings fund. Sadly though, sometimes this isn’t enough or the love has gone south high above the realms of no return, not even for a second chance. If divorce, lawyers, fees, courts, separation, child support, etc were not enough the stress of picking yourself back up after the pieces are shattered can be just as dreadful.

If you have never lived through a divorce and I hope you never do you will never understand the pain and fiery that couples go through. I don’t know and I never want to know but I listen and I am a person with feelings and a heart.

Even if couples say it is amicable there will always be a hole in their heart or a piece of their heart left behind. I believe we all have feelings unless you are some weird and wonderful person with a black heart incomprehensible to anyone, if ever in our lifetime.

Divorce Rate

According to Stats Canada in 2005 couples married between 5-9 years had the highest divorce rate at 16,207 divorces just up from 15,759 in 2004.  A study from the Vanier Institute of the Family in 2010 states that 4 in 10 first marriages end in divorce based on  2006 census data.

Want some Divorce Advice?

It costs, and it costs big time for some especially how divorce law can get pretty messy when children are involved or the procedures are long and drawn out.

The Ministry of the Attorney General is a good place to start when the time is right for you to start the divorce process. Is there  a right or wrong time deciding when to get a divorce, maybe but it’s up to you. If your mind is made up or the circumstances dictate the proposition then move forward as fast as you can. No sense prolonging the inevitable, life must go on.

Cost of Divorce

The cost of the divorce process in Ontario can be astronomical with retainer fees between $5,000-$10,000 and a further $200-$500 per hour. The worst part is if the divorce is contested than you better run for the hills or hope you have a secret stash of money. Contested divorces can cost upwards of $50,000 before they even go to trial according to myontariodivorce.com.

Some people try to go it alone with the divorce in a box and although the costs are cheaper, if the divorce is contested you better line up your savings as the bill will rise exponentially. Although the best way to save on legal fees according to Canadian Divorce Laws is to do as much of the work as you can yourself. Roll up your sleeves and see if you both can sort out your issues as it will make everything easier.

So although this topic is broad and I certainly cannot fit into one neat blog post take the time to know your rights. Know what you are getting into and plan the execution of a divorce proposition the easiest, cheapest way you can. If you have divorce questions seek the advice of a professional so you aren’t led astray. When the divorce is finally over you can move forward with your life to start over. Sometimes this is not as easy as it seems according to one fan who wrote to me.

Reader Story That Was Submitted: How Her Finances Survived her Divorce

When I first left my first marriage, I was broke with a capital B! Worse still, I was broke and in debt with the ex’s credit card debts in the amount of $60,000 to pay off while I made a whopping $18,000 per year.

The first thing I did was move back with my parents for 6 months to get a few months worth of salary in the bank, less the debt payments of course. I needed first & last month’s rent + a security deposit + the connection fee for my telephone. I found a cheap apartment, parked my car, took transit to work, had no cell, no internet, no cable or going out except for a one night a week.

I took a local night course per semester through the adult education program (about $50 per course) and I walked to the class until all the debts were repaid. That was a really long 5 years and I was lucky enough to receive a small windfall during that time that I dumped right on the debts. But, on the upside, I learned to appreciate the smallest of little “treats”.

My mother would take me out for a salad bar type of supper with her every couple of weeks. She regularly came and picked up my dog and took her to the beach for the day so she got out and had some serious exercise and then came home & bathed her before I got home from work.

I took every bit of help that was offered to me and I gratefully appreciated the lightening of my load. I couldn’t justify spending any extra transit money to go to the library so I read anything and everything that anyone was willing to give me for free – since that and walking my dog were my entertainment.

As I was in a new city, 3,500 miles from all my friends in Ontario, it was a lonely time but it built a self-reliance that I never dreamed I would have. I wrote letters to my friends, as I certainly couldn’t afford to call. You really find out who your friends are! I spoke to a gal yesterday that rode out that dark time with me, and has been in my life now for 36 years!

Would I like to repeat those days…nope! Could I cut back to that stark level again…in a heart beat if needed.
How did your finances survive Divorce?
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