1. What happens to RRSPs when you get divorced in Alberta?

2. Are RRSPs Considered Family Property in Alberta?

3. Does Each Spouse Automatically Get Half of the Other's RRSP?

4. What If I Had My RRSP Before We Got Married?

5. What If I Cannot Find Old RRSP Statements?

6. What If My Spouse Has RRSPs I Know Nothing About?

7. Can an RRSP Be Transferred to My Spouse Without Cashing It Out?

8. Why Shouldn't We Just Withdraw the RRSP and Pay Cash?

9. What Happens If One Spouse Has Much Larger RRSPs?

10. What About RRSP Contributions Made After Separation?

11. What If My Spouse Withdraws Money From an RRSP After Separation?

12. Are Spousal RRSPs Treated Differently?

13. Do I Have to Divide the RRSP Before the Divorce Is Final?

14. Don't Look at RRSPs in Isolation

15. How Bridgestone Law Can Help

Introduction

When couples think about dividing property after separation, the family home is often the first asset that comes to mind. But for many Alberta families, RRSPs and other retirement savings can be just as important.

One spouse may have spent decades contributing to an RRSP through their employment or personal savings. Another spouse may have contributed less because they earned a lower income, stayed home with children or took on other responsibilities during the marriage.

This often leads to an important question:

What happens to RRSPs when you get divorced in Alberta?

An RRSP being registered in one spouse's name does not necessarily mean that spouse gets to keep its entire value. RRSPs may form part of the property considered when spouses divide their family property following separation.

However, that does not necessarily mean every RRSP is simply divided in half.

When the RRSP was accumulated, its value at important dates, potential exemptions, tax consequences and the couple's other property can all affect the final settlement.

Are RRSPs Considered Family Property in Alberta?

RRSPs can be included in the property division between spouses.

Under Alberta's Family Property Act, the Court has authority to distribute property owned by either or both spouses. Property acquired during the marriage is generally divided equally unless an equal division would not be just and equitable after considering the circumstances set out in the legislation.

This means an RRSP does not have to be jointly registered to be relevant.

For example, imagine that David and Amanda were married for 20 years. During the marriage, David regularly contributed to an RRSP through his employment and the account is now worth $300,000.

The RRSP is entirely in David's name.

David cannot necessarily say:

"It's my RRSP, so Amanda has no claim to it."

The account may still need to be included when the spouses determine how their family property will be divided.

Does Each Spouse Automatically Get Half of the Other's RRSP?

Not necessarily.

Property division is generally considered across the spouses' overall financial picture, rather than treating every individual asset as something that must physically be divided in half.

Suppose one spouse has:

• $300,000 in RRSPs;

• the other spouse has $100,000 in RRSPs;

• they jointly own a home;

• both have vehicles;

• they have savings and investments; and

• they also have debts.

It may not be necessary to divide every account equally.

Instead, the spouses may negotiate an overall property settlement that produces the appropriate division of their family property.

One spouse might retain more of an RRSP while the other receives more equity from the family home. In another case, a portion of one spouse's RRSP may be transferred directly to an RRSP belonging to the other spouse.

The appropriate solution depends on the entire financial picture.

What If I Had My RRSP Before We Got Married?

This is an important consideration.

Under Alberta's Family Property Act, certain property acquired before the marriage or before the spouses' relationship of interdependence began may have an exempt value.

Generally, the relevant market value of qualifying property at the beginning of the relationship may be exempt from distribution. The increase in value of exempt property is treated differently and may be distributed in a manner the Court considers just and equitable.

Consider this example.

Example: RRSP Owned Before Marriage

Jennifer had an RRSP worth approximately $80,000 when she began her relationship with Mark.

During their marriage, Jennifer continued contributing to the RRSP. The investments also increased in value.

At separation, the account is worth $260,000.

It would not necessarily be correct to simply take $260,000 and divide it equally.

Jennifer may be able to claim an exemption relating to the value she brought into the relationship. The remaining value must then be analyzed under Alberta's family property legislation.

This makes historical records extremely important.

If you had substantial RRSPs before your relationship began, records showing the account's value at the relevant date may become valuable evidence.

What If I Cannot Find Old RRSP Statements?

This is a common problem, particularly after a long marriage.

Someone separating after 20 or 30 years may have difficulty locating an RRSP statement showing exactly what their account was worth when the relationship began.

Financial institutions may not retain statements indefinitely.

Depending on the circumstances, lawyers may look for other evidence, including:

• old investment statements;

• RRSP contribution records;

• tax returns;

• Notices of Assessment;

• financial planning records;

• documents retained by accountants or advisors; and

• other evidence capable of establishing the historical value.

This is one reason it is important to begin gathering financial records early in the separation process.

Simply remembering that you "had about $50,000 in RRSPs" decades ago may not be sufficient to establish the value of an exemption.

What If My Spouse Has RRSPs I Know Nothing About?

Financial disclosure is an essential part of resolving family property.

Both spouses should provide sufficient information to identify and value their assets and liabilities, including registered investment accounts.

This can include statements for:

• RRSPs;

• spousal RRSPs;

• RRIFs;

• TFSAs;

• pensions;

• non-registered investment accounts; and

• other investment or retirement accounts.

If you believe your spouse has an RRSP that has not been disclosed, your lawyer can request the appropriate financial information.

Attempting to settle property division without complete disclosure can create serious problems.

You cannot properly determine whether a proposed settlement is fair if you do not know what property exists.

Can an RRSP Be Transferred to My Spouse Without Cashing It Out?

Yes, and this is an extremely important feature of RRSP division following separation.

The Canada Revenue Agency permits certain direct transfers between the registered plans of current or former spouses or common-law partners following a relationship breakdown.

To qualify, the transfer must meet the applicable requirements, including that the spouses are living separate and apart because of the breakdown of their relationship and that the recipient is entitled to the amount under a court order or qualifying written agreement dealing with property division.

The transfer is generally made directly between the registered plans rather than by withdrawing the money personally.

CRA uses Form T2220 to document qualifying transfers involving RRSPs, RRIFs, PRPPs and specified pension plans on the breakdown of a marriage or common-law partnership.

When the requirements are satisfied and the transfer is completed directly, the transferred amount generally does not have to be reported as income by the transferring spouse at the time of the transfer.

The receiving spouse also does not need ordinary unused RRSP contribution room to receive a qualifying transfer.

The funds remain within the registered retirement system and are generally taxed when they are eventually withdrawn by the recipient.

Why Shouldn't We Just Withdraw the RRSP and Pay Cash?

Because withdrawing an RRSP can create immediate tax consequences.

RRSPs are tax-deferred accounts. Generally, tax becomes payable when funds are withdrawn.

A spouse who simply withdraws $100,000 from an RRSP to pay the other spouse may therefore create a very different tax result than if the amount were properly transferred between registered plans as part of the property settlement.

CRA specifically distinguishes a qualifying direct transfer from a situation where a person receives the RRSP funds themselves. If the funds are received in cash or by cheque rather than properly transferred directly, the tax-deferred treatment may not be available.

For that reason, spouses should obtain legal and appropriate tax or financial advice before withdrawing RRSP funds to complete a divorce settlement.

A transaction that seems simple can create a substantial and unnecessary tax bill if it is structured incorrectly.

Is $100,000 in an RRSP the Same as $100,000 in Cash?

Not necessarily.

This is one of the most important practical issues when negotiating property division.

Suppose a couple is discussing two assets:

Spouse A keeps:

$100,000 in an RRSP

Spouse B keeps:

$100,000 in a savings account

At first glance, the division appears equal.

But the assets are not necessarily economically identical.

Money held in a regular savings account may generally be available without the same income tax consequences associated with withdrawing funds from an RRSP. RRSP funds are tax-deferred, meaning tax will generally become payable when the money is ultimately withdrawn.

As a result, lawyers and financial professionals may need to consider the tax characteristics of different assets when negotiating a property settlement.

The appropriate treatment depends on the circumstances and should not be reduced to a universal tax percentage.

What Happens If One Spouse Has Much Larger RRSPs?

A significant difference in retirement savings can become an important part of property negotiations.

For example:

Michael has $500,000 in RRSPs.

Laura has $75,000 in RRSPs.

They also own a family home with substantial equity.

There may be several ways to structure their settlement.

Michael could transfer part of his RRSP to Laura.

Alternatively, Michael might retain more of his retirement savings while Laura receives a greater portion of another asset, such as the equity in the family home.

The parties may also use a combination of transfers and other property adjustments.

The objective is not necessarily to make every individual account identical. The goal is to properly resolve the spouses' rights to the overall family property.

What About RRSP Contributions Made After Separation?

The date of separation can become important when determining property rights.

A spouse may continue contributing thousands of dollars to an RRSP after the parties separate. Whether and how those post-separation contributions affect the ultimate property calculation requires consideration of Alberta's Family Property Act and the particular facts of the case.

For this reason, separating spouses should keep clear records of:

• the RRSP balance around separation;

• contributions made after separation;

• withdrawals after separation;

• transfers between accounts; and

• changes in investment value.

Maintaining good records can make it much easier to understand what happened to the account between separation and the eventual settlement.

What If My Spouse Withdraws Money From an RRSP After Separation?

Large withdrawals should not simply be ignored.

Suppose an RRSP contained $250,000 shortly after separation, but by the time financial disclosure is exchanged it contains only $150,000.

The obvious question is:

What happened to the other $100,000?

The spouse may need to provide statements and other records showing the withdrawal and where the money went.

There may be a legitimate explanation. The funds could have been used to pay taxes, family expenses, debts or other obligations.

But unexplained withdrawals or transfers can become a significant issue in family property litigation.

This is why obtaining financial disclosure for the relevant period, rather than simply looking at today's account balance, can be extremely important.

Are Spousal RRSPs Treated Differently?

Spousal RRSPs can add another layer of complexity.

A spousal RRSP generally involves one spouse contributing to an RRSP under which the other spouse is the annuitant. CRA has specific rules concerning spousal RRSPs, including rules that can affect the taxation of withdrawals.

Following a relationship breakdown, there are also circumstances in which the contributor information associated with a spousal RRSP or RRIF may be removed when CRA's requirements are satisfied.

The existence of a spousal RRSP should therefore be identified during financial disclosure and considered carefully when negotiating the final property settlement.

Do I Have to Divide the RRSP Before the Divorce Is Final?

The legal divorce itself and the division of property are related but distinct issues.

Spouses will often resolve their property claims through a comprehensive separation agreement before or as part of completing their divorce.

The agreement can specify:

• which RRSPs each spouse will retain;

• the amount to be transferred;

• the date used to calculate the transfer;

• how investment gains or losses will be handled;

• which institution will complete the transfer;

• what documentation must be signed; and

• any other adjustments forming part of the property settlement.

Clear drafting matters.

RRSP values can change with the market. If an agreement simply says that one spouse will transfer "$100,000 from their RRSP" and several months pass before the transfer occurs, the financial result can differ from an agreement that provides for a percentage of an account or addresses gains and losses during the transfer period.

Don't Look at RRSPs in Isolation

RRSPs should generally be considered alongside the rest of the spouses' financial circumstances.

A family property settlement may involve:

• the family home;

• RRSPs and RRIFs;

• pensions;

• TFSAs;

• investment accounts;

• businesses;

• vehicles;

• bank accounts;

• valuable personal property; and

• family debts.

A spouse may be tempted to say:

"I'll keep the house and you keep your RRSP."

Sometimes that may be a reasonable settlement.

Sometimes it may not.

The values of the assets, exemptions, debts, tax consequences and long-term financial implications should all be understood before an agreement is signed.

How Bridgestone Law Can Help

RRSPs can be particularly complicated during divorce because they involve both family property law and tax considerations.

At Bridgestone Law, our Calgary family lawyers can help identify the RRSPs and other investments that need to be disclosed, determine whether an exemption may apply, review historical account information and consider how registered savings fit into the overall division of family property.

We can also help structure a settlement that addresses the mechanics of an RRSP transfer and work with accountants, financial advisors and other professionals where specialized tax or financial advice is required.

Most importantly, you should understand what you are giving up and what you are receiving before agreeing to a property settlement.

An RRSP balance on a statement is only one part of the picture.

If you are separating or divorcing in Alberta and have questions about how your RRSPs, retirement savings or other investments may be divided, contact Bridgestone Law to speak with a Calgary family lawyer about your options.