How are RRSPs, TFSAs and investment accounts divided in Ontario?

In Ontario, RRSPs, RRIFs, TFSAs and non-registered investment accounts are all property that goes into each married spouse's net family property at their value on the valuation date, less any applicable contingent tax. Each spouse's total is then reduced by the net value of the property (other than a matrimonial home) they owned on the wedding day (Family Law Act, s. 4). They are not automatically split in half. If an account is used to pay equalization, the Income Tax Act allows registered plans to be transferred directly between spouses under a court order or written separation agreement without immediate tax.

How investment accounts are handled in a property division, step by step

Savings and investments are often the most liquid part of a family's wealth, which makes them the natural way to settle the equalization explained on our property division page. The process has two parts: valuing each account for the calculation, and then deciding whether any of it actually moves.

1. List every account in each name and in joint names. Include RRSPs, spousal RRSPs, RRIFs, TFSAs, FHSAs, locked-in accounts, brokerage accounts, GICs and cryptocurrency held on exchanges. Workplace pensions follow their own rules, explained in our guide to how pensions are divided.
2. Get the valuation-date statements. In an Ontario property case, each spouse must serve the statement issued closest to the valuation date for each account, pension, registered retirement or other savings plan and investment (Family Law Rules, r. 13(3.3), para. 1). Values are taken as of the close of business on that date (Family Law Act, s. 4(4)).
3. Get the wedding-day values. Property owned on the date of marriage, other than a matrimonial home, is deducted at its value on that date, after its debts (s. 4(1)). The spouse claiming the deduction has to prove it (s. 4(3)), and rule 13(3.3), para. 13 requires any available documentation of marriage-date values. Our guide to calculating net family property shows where these figures go.
4. Deduct contingent tax. The liabilities deducted in net family property include "any applicable contingent tax liabilities in respect of the property" (s. 4(1.1)). For an RRSP or RRIF, tax is usually payable on withdrawal; for a non-registered account, tax may be payable on unrealized gains. How much to deduct is often argued with evidence.
5. Check exclusions. Investments that can be traced to a gift or inheritance from a third party received during the marriage may be excluded (s. 4(2), paras. 1 and 5). Our page on property excluded from equalization explains tracing and what happens when an inheritance is mixed with family money.
6. Decide how equalization is paid. If the paying spouse uses an investment account, the agreement or order should say which account, how much, and the tax treatment. Our page on how an equalization payment is paid covers the other options.
7. Make the transfer the tax-efficient way. Registered plans should move directly from one plan to another under the order or written agreement, rather than by cashing out.

How each type of account is treated

What changes the answer

• Spousal RRSPs. Normally, if money comes out of a spousal RRSP soon after the contributing spouse paid in, the withdrawal can be taxed in the contributor's hands. That attribution rule does not apply while the spouses are living separate and apart because of the breakdown of the relationship (Income Tax Act, s. 146(8.3)).
• Joint accounts. Money on deposit in both spouses' names is treated as held in joint tenancy, and joint tenancy is proof, absent evidence to the contrary, that the spouses intended to own it jointly (Family Law Act, s. 14).
• Growth or losses after separation. Net family property uses values on the valuation date (s. 4(1)). If one spouse keeps an account and it later rises or falls, that change generally stays with the owner, unless the spouses agree to share it or the account is jointly owned.
• Contingent tax disputes. The Act allows applicable contingent tax to be deducted (s. 4(1.1)) but does not set a rate. Evidence of when funds are likely to be withdrawn and at what tax rate usually decides the figure.
• Withdrawing money after separation. A spouse who empties an account after separation does not reduce the valuation-date figure, but may face a preservation order or an unequal division argument. Our page on a spouse hiding or selling assets explains the remedies.
• Common-law partners. The registered-plan transfer rules in the Income Tax Act cover common-law partners too, but Ontario's equalization does not; common-law partners rely on ownership, agreements and trust or unjust enrichment claims.

A worked example

For example, imagine Leah and Tomas separate after 12 years of marriage. This is a hypothetical. On the valuation date, Leah has an RRSP of $260,000 and a TFSA of $90,000; Tomas has a non-registered brokerage account of $120,000 with $40,000 of unrealized gains. Leah's RRSP was worth $40,000 on the wedding day; Tomas owned nothing on the wedding day.

• Leah: $260,000 + $90,000 = $350,000, less the $40,000 wedding-day value, less contingent tax on the RRSP. If they agree on a 30 percent rate on the $260,000 for illustration, that is $78,000. Leah's investments contribute $232,000 to her net family property.
• Tomas: $120,000 less contingent tax on the gain. If they agree on $9,000 of tax on the $40,000 gain for illustration, his investments contribute $111,000.
• Payment: if, after all other assets, Leah owes Tomas $60,000, she could transfer about $85,700 from her RRSP directly to an RRSP for Tomas, an amount that, at the same 30 percent assumption, is worth about $60,000 after tax, or pay $60,000 from her TFSA by a qualifying TFSA-to-TFSA transfer. The choice is about which dollars are worth more after tax.

The rates and figures are invented for illustration. Real cases use evidence of the likely tax, and a tax professional should review any transfer.

Common mistakes with RRSPs, TFSAs and investments

• Cashing out an RRSP to pay equalization. A withdrawal is taxable. A direct transfer under s. 146(16)(b) is usually far more efficient.
• Treating RRSP dollars as cash. Amounts received out of an RRSP are included in income (Income Tax Act, s. 146(8)), so a dollar-for-dollar swap of RRSP money against cash or other accounts can be unfair.
• Forgetting the wedding-day statements. Without proof of what you owned when you married, the deduction can be lost (s. 4(3)).
• Making a TFSA transfer by withdrawal and recontribution. Only a direct transfer that meets the "qualifying transfer" definition is treated that way.
• Ignoring unrealized gains in a brokerage account. The contingent tax on those gains can matter.
• Transferring before the paperwork is signed. The tax rules require the transfer to be made under an order, judgment or written separation agreement.

What to do this week

1. Download statements for every account as close as possible to your separation date.
2. Look for statements from around your wedding date, or ask the institution for archived statements.
3. Note which accounts are spousal RRSPs and who contributed to them, and check the deadline to claim equalization if separation was some years ago.
4. Do not withdraw from or close any account without advice.
5. Ask your accountant for an estimate of the tax on withdrawing each registered plan and on selling non-registered holdings.
6. Book a free consultation so the accounts are valued and, if needed, transferred in the most tax-efficient way.

Frequently asked questions

Is my RRSP split 50/50 when we separate?

No. Its value goes into your net family property, and the spouse with the higher total pays half the difference. The RRSP itself only moves if you agree, or a court orders, that it be used to pay.

Does a TFSA transfer to my spouse use up their contribution room?

A direct transfer between the spouses' TFSAs that meets the "qualifying transfer" definition, made while living separate and apart under an order or written separation agreement, is excluded from the contribution count used to work out an excess TFSA amount (Income Tax Act, s. 207.01(1)).

Can I deduct tax from my RRSP's value?

The Act allows applicable contingent tax liabilities to be deducted (Family Law Act, s. 4(1.1)). The amount is often negotiated or argued with evidence of likely withdrawal timing and tax rates.

What if my RRSP existed before the marriage?

Its value on the wedding day is deducted, if you can prove it (s. 4(1) and 4(3)). Growth during the marriage is shared through equalization.

What about my children's RESP?

RESPs raise their own questions about ownership and purpose. List the plan, the subscriber and the balance, and raise it with your lawyer early, because it often interacts with child support for post-secondary costs.

When should the transfer happen?

After the agreement is signed or the order is made, and directly between plans, so the conditions in the Income Tax Act are met. Our page on financial disclosure lists the documents your institution may ask for.

Sources

• Family Law Act, R.S.O. 1990, c. F.3, ss. 4 and 14
• Family Law Rules, O. Reg. 114/99, rule 13(3.3)
• Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), s. 146(8), (8.3) and (16)
• Income Tax Act, s. 146.3(14)
• Income Tax Act, s. 207.01(1)
• Income Tax Act, s. 73