A registered retirement savings plan (hereinafter referred to as “RRSP”) is a type of financial account in Canada for holding savings and investment assets. RRSPs have various tax advantages compared to investing outside of tax-preferred accounts. For instance, when you contribute money into an RRSP account, you are exempt from being taxed in the year you made the contribution, and the tax is deferred until retirement or when an individual chooses to withdraw from their RRSP account.
Family patrimony does not apply to common law spouses. This means that an individual’s RRSP or pension plan is not necessarily an asset to be shared between the parties. Unless the common law spouses sign an agreement, like a contract, which stipulates that they will share their assets, it cannot be enforced between common law spouses.
RRSPs are considered in the family patrimony and therefore begin accumulating, for the purpose of calculating the family patrimony, from the date of marriage to the date the spouses institute legal proceedings, to obtain a divorce or separation from bed and board.
It is not always easy to determine the sums accumulated into an RRSP account, pre marriage, which is why it is important to try and keep track of these financial values at the time of marriage.
While the general rule is that RRSPs shall be shared at the date which legal proceedings were instituted, the exception is at the date the parties ceased sharing a community of life together. If the parties cannot agree which partition date will apply, the general rule is to share the value of each spouses’ RRSPs at the date of the institution of the legal proceedings, unless a Judge orders otherwise.
In the event of separation from bed and board, or the dissolution or nullity of a marriage, the value of each spouses’ RRSPs is equally divided between the spouses. To obtain the value of the RRSPs, spouses can agree to the partition in a separation agreement, or they can be ordered by a Court to partition their accumulated RRSPs.
Some spouses prefer to keep their RRSPs untouched. To ensure that the value is portioned nonetheless, parties can agree that the value of the RRSPs be paid by another means, such as the sale of the family residence. For instance, the receiving spouse can agree to keep the family residence in exchange for the paying spouse to keep their RRSPs. The value is therefore partitioned by dividing assets of equal value. It would be important to keep in mind that adjustments should be made for the tax implications of such an agreement, since pension plans and RRSPs are tax-deferred, whereas the transfer of a family residence is not.
Failing such an agreement, rest assured that the most convenient way to minimize tax implications for either spouse is by way of a tax-free spousal rollover which is permitted by way of the Income Tax Act to ensure that spouses going through a divorce are not penalized by transferring their RRSPs.
Getting a divorce inevitably has financial consequences on each spouse. However, partitioning RRSPs results in financial consequences that can affect an individual’s retirement plan. Attorney’s and financial advisors can certainly help explain the financial and fiscal consequences a divorce can have, which is why you shouldn’t hesitate to speak to one if you or someone close to you is going through this process. While it is important to understand the possible consequences of a divorce before getting married, partitioning one’s RRSPs is also something that needs to be considered and discussed.
Sources:
Partage des régimes de retraite lors de la rupture du mariage, Formation by the Barreau du Quebec given by Carolyn Martel, Actuariat