Registered savings make up a big chunk of what most couples build together over the course of a relationship. An RRSP might hold decades of retirement contributions. A TFSA might hold cash, stocks, mutual funds, or other investments. So it’s no surprise that people are caught off guard when they learn that an account in one spouse’s name alone doesn’t automatically mean that spouse walks away with all of it.
Under BC’s Family Law Act, RRSPs, TFSAs, and other investment accounts can count as family property, which means they may need to be divided between spouses. But figuring out how much actually gets divided isn’t always straightforward. A few questions tend to shape the outcome:
- When was the money saved, and over what period of the relationship?
- What was the account worth at the start of the relationship?
- What date should be used to value the account now?
- How should taxes factor into the split?
Below, we’ll walk through what BC residents should know about dividing RRSPs after divorce, dividing TFSAs after separation, and the tax issues that can come with bo
Are RRSPs and TFSAs Family Property in BC?
Generally, they can be. Under section 84 of BC’s Family Law Act, family property includes money held in financial accounts as well as a spouse’s entitlement under a retirement savings plan or income plan. Subject to excluded-property rules, property owned by either spouse on the date of separation can therefore form part of the family property pool.
The starting point under the Act is that spouses are equally entitled to family property, regardless of which spouse acquired, used, or contributed to a particular asset. On separation, each spouse generally has an undivided half interest in family property, although an agreement or court order can provide otherwise.
This means that putting an RRSP or TFSA in one person’s name does not, by itself, shield that account from property division. However, that does not necessarily mean the entire account balance will be divided.
What If You Had the RRSP or TFSA Before the Relationship?
This is one of the most important issues in registered savings and property division.
Property a spouse owned before the relationship began is generally excluded property. The spouse claiming the exclusion has the responsibility of proving that it qualifies.
For example, suppose Jordan had an RRSP worth $80,000 when Jordan’s relationship with Taylor began. At the time of separation, that RRSP is worth $190,000.
The original $80,000 may potentially qualify as excluded property if Jordan can establish its value and trace it appropriately. However, BC law generally treats the increase in value of excluded property during the relationship as family property.
The calculation is not always as straightforward as simply subtracting one account statement from another. There may have been:
- additional contributions during the relationship;
- investment gains and losses;
- transfers between financial institutions;
- withdrawals;
- spousal RRSP contributions;
- consolidation of accounts; or
- movement of funds between different investments.
Good financial records can therefore become extremely important.
Practical Tip: Find Your Old Statements Early
If you owned an RRSP or TFSA before your relationship began, try to obtain statements showing the account’s value as close as possible to the date your spousal relationship started.
Waiting several years can make these records more difficult to obtain.
What Date Is Used to Value an RRSP or TFSA?
One of the most common misunderstandings about RRSP division after divorce concerns valuation dates.
The date of separation is important for determining what property falls into the family-property regime, but it is not necessarily the date used to determine the final dollar value of that property.
Section 87 of the Family Law Act provides that, unless an agreement or order says otherwise, family property is valued at fair market value as of:
- the date the spouses make an agreement dividing their property and debt; or
- the date of the court hearing concerning property division.
That distinction can matter considerably for investment accounts.
Example: Investments Rise After Separation
Suppose an investment TFSA is worth $120,000 when spouses separate.
Eighteen months later, when they sign their separation agreement, the account is worth $145,000 because the underlying investments have increased in value.
It may be incorrect simply to assume that $120,000 is the number that must be divided. BC’s statutory valuation rules may make the later value relevant. Conversely, investment accounts can fall in value after separation.
This is one reason people should be cautious about agreeing to divide investments based on an old statement without understanding what has happened to the account since then.
RRSP Division After Divorce: Why Taxes Matter
RRSPs require special attention because an RRSP dollar is not economically identical to a TFSA dollar or a dollar in a chequing account.
Money generally grows tax-deferred inside an RRSP, but withdrawals are ordinarily taxable as income. The CRA confirms that amounts received from an RRSP are generally taxable when paid out.
A TFSA works differently. Contributions are made with after-tax money, and investment income and withdrawals are generally tax-free.
Consider a simplified example:
- Spouse A has a $100,000 TFSA.
- Spouse B has a $100,000 RRSP.
Although both accounts show a balance of $100,000, they may not have the same after-tax economic value because future RRSP withdrawals may attract income tax while qualifying TFSA withdrawals generally do not.
This distinction can become important during equalization negotiations.
Should an RRSP Be Discounted for Future Tax?
Sometimes parties assume that an RRSP should automatically be reduced by a fixed tax percentage before division. That approach can be too simplistic.
The actual tax ultimately payable on an RRSP depends on circumstances that may include the owner’s future income, withdrawal timing, tax rates, and retirement strategy.
BC’s Family Law Act expressly allows the court, when considering whether equal division would be significantly unfair, to consider tax liability that may arise from a transfer, sale, or court order.
In negotiated settlements, lawyers and financial professionals may therefore consider the latent or deferred tax liability associated with an RRSP when comparing it with other assets. The appropriate treatment is fact-specific. There is no universal tax discount that should automatically be applied to every RRSP.
Can an RRSP Be Transferred Between Former Spouses Without Immediate Tax?
In appropriate circumstances, yes. CRA rules permit certain direct transfers of RRSP property between current or former spouses or common-law partners following relationship breakdown.
Where the parties are living separate and apart because of the breakdown of their relationship and the transfer is made pursuant to a court order or written agreement dealing with property division, qualifying RRSP amounts may be transferred directly to the recipient spouse’s RRSP or, depending on age and circumstances, another qualifying registered plan.
For this type of transfer, CRA identifies Form T2220 — Transfer from an RRSP, RRIF, PRPP or SPP to Another RRSP, RRIF, PRPP or SPP on Breakdown of Marriage or Common-law Partnership. When properly transferred directly, the amount is not treated as ordinary taxable cash received by the transferring spouse at that time.
Do Not Simply Cash Out the RRSP
This distinction is crucial. Taking money out of an RRSP personally and then paying cash to a former spouse can have very different tax consequences from arranging a qualifying direct registered-plan transfer. Before withdrawing an RRSP to satisfy a property settlement, obtain legal and tax advice about how the transaction should be structured.
TFSA Separation: Can TFSA Funds Also Be Transferred?
Yes, but the transfer should also be structured correctly. The CRA permits a qualifying direct TFSA transfer following the breakdown of a marriage or common-law relationship where:
- the spouses or partners are living separate and apart at the time of transfer; and
- the payment is made under a court order, judgment, or written separation agreement dealing with division of property.
When completed as a qualifying direct transfer through the financial institution, the transfer does not affect either person’s available TFSA contribution room. That can be extremely useful in a separation.
Why Withdrawing the TFSA Yourself Can Create Problems
Suppose one spouse is required to transfer $50,000 of TFSA value to the other. If the transfer is arranged directly between the financial institutions in accordance with the separation agreement, it may qualify for the special transfer rules.
But if the first spouse withdraws $50,000 and gives the second spouse a cheque, and the second spouse then deposits the money into their TFSA, the deposit is ordinarily treated as a new TFSA contribution.
If the receiving spouse does not have enough contribution room, an overcontribution and tax penalties may result. The CRA specifically warns about this distinction. The wording of the separation agreement and the way the financial institution processes the transfer therefore matter.
Equalization: Does Every RRSP and TFSA Have to Be Split in Half?
No. A property settlement does not necessarily require every individual asset to be physically divided 50/50. Instead, spouses can negotiate how the overall family-property pool will be divided.
For example, one spouse might retain a larger RRSP while the other keeps more equity in the family home. Another couple might divide the TFSA but leave an RRSP intact, with a payment or transfer of another asset used to balance the overall settlement.
Section 92 of the Family Law Act expressly allows spouses to enter agreements dividing family property and debt equally or unequally and to agree on different valuation arrangements.
This process is sometimes informally described as equalization: comparing what each spouse will retain and using transfers or payments to achieve the agreed overall division. BC does not require every account to be mechanically cut in half.
Can the Court Divide Property Unequally?
Yes, although equal division is the statutory starting point. Under section 95 of the Family Law Act, the Supreme Court of British Columbia may order an unequal division where equal division would be significantly unfair.
Among the factors the court may consider are certain post-separation changes in property value, improper disposition of family property, and tax liabilities arising from a transfer or sale. The threshold is not simply whether one party believes another result would be fairer. The legislation uses the higher standard of significant unfairness.
Common Mistakes With RRSPs and TFSAs After Separation
Registered savings can create expensive problems when they are dealt with informally. Common pitfalls include:
- Assuming the account belongs solely to the named owner. Registration does not determine whether an asset is family property under BC family law.
- Using the separation-date balance without considering the proper valuation date. Property may rise or fall significantly before an agreement or hearing.
- Failing to document excluded property. If you had substantial savings when the relationship began, historical statements may be essential.
- Treating an RRSP and TFSA as having identical economic value. RRSPs generally carry deferred income-tax consequences; TFSAs generally do not.
- Cashing out an RRSP to pay a settlement without first considering a direct transfer. This can trigger unnecessary immediate tax.
- Withdrawing TFSA funds and having the other spouse recontribute them personally. A qualifying direct transfer can avoid using the recipient’s TFSA contribution room, while a withdrawal-and-recontribution strategy may not.
- Signing an agreement that simply says “divide the RRSP equally.” Financial institutions may need precise instructions identifying accounts, amounts or percentages, valuation dates, transfer mechanics, and the legal basis for the transfer.
What Documents Should You Gather?
If RRSPs or TFSAs are likely to form part of your separation, it is helpful to obtain:
- current RRSP and TFSA statements;
- statements from around the date of separation;
- statements showing account values when the relationship began;
- records of significant contributions and withdrawals;
- records of transfers between registered accounts;
- documents showing whether inherited or gifted money was contributed to an account; and
- information about the investments held inside each account.
The more complete the financial history, the easier it is to determine what may be family property and what may qualify as excluded property.
RRSPs, TFSAs and Common-Law Separation in BC
These property-division issues are not limited to legally married couples.
BC’s Family Law Act property regime can also apply to qualifying unmarried spouses. As a result, someone leaving a long-term common-law relationship should not assume that RRSPs or TFSAs are outside the property-division rules simply because there was no marriage or divorce.
Obtaining advice early is particularly useful if significant assets were accumulated before the relationship or if there is disagreement about the date the spousal relationship began or ended.
Key Takeaway
For most separating spouses in British Columbia, the important question is not simply “Whose name is on the RRSP or TFSA?”
The better questions are:
- Was the account or part of it acquired before the relationship?
- How much of its growth is family property?
- What is the correct valuation date?
- What tax consequences attach to the account?
- Can the settlement be implemented through a qualifying direct transfer?
- Should another asset be used to equalize the property division instead?
RRSP and TFSA division can look straightforward on an account statement but become considerably more complicated once excluded property, investment growth, taxation, transfer rules, and the overall family-property settlement are considered.
Getting the structure right before money moves can prevent unnecessary tax consequences and future disputes.
Speak With a BC Family Lawyer
If you are separating and have RRSPs, TFSAs, investments, pensions, real estate, or other significant assets, obtaining legal advice before transferring or withdrawing funds can help you understand your rights and avoid costly mistakes.
The family law team at ALG Lawyers can assist with property division, separation agreements, negotiations, and other issues arising after separation. Contact ALG Lawyers to discuss your circumstances with a lawyer.
