The Globe and Mail on division of Registered Retirement Savings Plans following the breakdown of a marriage:
While family law across Canada calls for a 50-50 split of matrimonial property, couples don’t necessarily need to split each asset right down the middle. And many don’t, says Ms. Linden, choosing instead to allocate certain types of assets to each spouse in a way that gives both parties roughly the same dollar value in the end.
The tax implications inherent in an RRSP should make parting couples pause for thought, says Tracy Theemes, a certified financial planner and co-owner of Sophia Financial Group in Vancouver.
“There’s a lack of understanding of what an RRSP really is,” says Ms. Theemes, a financial divorce specialist.
“It’s a tax holding structure. With an RRSP, you have a relationship with the CRA (Canada Revenue Agency), and that’s a distinct difference from other types of assets.”Dividing or transferring an RRSP during a divorce does not trigger a tax bill or credit for anyone, but cashing it out will, says Ms. Theemes. That’s why it’s important for divorcing couples to make sure they’ll have enough cash to take them through the transition period after separation, and beyond.
Ms. Theemes says she usually advises couples to just divide all assets down the middle – RRSPs, other investments, and cash from the sale of the family home.
“Especially in high-conflict splits, that’s the best thing to do,” she says.
I usually recommend to clients that the RRSPs simply be divided by way of tax-free rollover, whereby the funds are equalized between the parties without any monies being withdrawn.
If the parties insist on anything other than an equal division – say, if one party decides to waive her entitlement to the RRSPs in order to keep the matrimonial home – standard practice in Nova Scotia is to deduct the applicable withholding tax rate (between 10% and 30%, depending on the balance) In other words, $50,000.00 in an RRSP would be valued at $35,000.00 for division purposes.