Divorce Adds New Twist To RRSP Planning
Written by Garry Marr | National Post | February 6, 2013
National Post Excerpt:
Darren Gingras is president of the Common Sense Divorce, a new private company hoping to guide Canadians through a marital breakup. “When you are in a retired position you don’t have time to recoup assets as you would do when you are 30 40,” he said. “You are setting yourself up for financial ruin if not done properly.”
Author Gail Vaz-Oxlade, who has been twice divorced and is now separated, said you have to treat a marriage breakdown as business decision. “You can’t let your emotions run away from you,” says Ms. Vaz-Oxlade, who is a minority partner in Mr. Gingras’s company. “You do that and you get steered in the wrong direction.”
Ms. Vaz-Oxlade says decisions like keeping the family home instead of retirement assets have to be realistic. “When people decide they want to keep the home regardless of impact, what inevitably happens is they find themselves living in a big house and nothing for the future. They have to sell the house anyway.”
She adds people need to realize you go into divorce with “a certain amount of oranges” and you have to decide how much you’ll give to the legal system. She notes the average contested divorce costs $23,000.
“As much money as you give away to the system, that’s how much less you will have as your own asset base,” says Ms. Vaz-Oxlade.
“Ultimately, you want to walk away with as much assets as you can because you are about to build a new life.”
CREATING A NEW FUTURE?
Choose the RIGHT solution!
Do you want to understand how Online Mediation can work for you? Book a free JOINT TELEPHONE CONSULT for you and your Spouse. We will gladly explain the entire process and its benefits.
CREATING A NEW FUTURE?
Choose the RIGHT solution!
Do you want to understand how Online Mediation can work for you? Book a free JOINT TELEPHONE CONSULT for you and your Spouse. We will gladly explain the entire process and its benefits.
In the context of divorce, RRSPs (Registered Retirement Savings Plans) may be considered as part of the financial assets to be divided between spouses. Here are some key points to keep in mind:
Equalization of Assets:
- In many jurisdictions, during a divorce, assets acquired during the marriage are subject to equalization. This includes RRSPs that were accumulated during the marriage.
Division of RRSPs:
- RRSPs can be divided between spouses as part of the divorce settlement. This is typically done through a legal process that may involve a court order or a separation agreement.
Tax Implications:
- Transfers of RRSP funds between spouses due to divorce are generally considered tax-free if done properly. The funds can be transferred directly from one spouse’s RRSP to the other’s without triggering immediate tax consequences.
Court Approval or Agreement:
- The division of RRSPs may require court approval or be outlined in a separation agreement. It’s advisable to work with legal professionals to ensure that any division is done according to the laws and regulations of your jurisdiction.
RRSP Withdrawals and Tax Considerations:
- If one spouse decides to withdraw funds from their RRSP as part of the settlement, this withdrawal may be subject to income tax. However, there are special provisions for withdrawals in the case of a relationship breakdown.
Financial Planning:
- Seek the advice of financial and legal professionals to understand the implications of dividing RRSPs and to create a financial plan for the post-divorce period.
Pension Adjustment:
- In addition to RRSPs, if either spouse has a pension plan, there may be a Pension Adjustment (PA) to consider. The PA reflects the value of pension benefits accrued during the marriage and may impact the equalization of assets.
It’s crucial to consult with legal and financial professionals to ensure that the division of RRSPs is carried out properly and that both parties understand the implications for their financial future. Laws regarding divorce and asset division can vary by jurisdiction, so seeking local advice is important.