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
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