RRSPs accumulated during marriage are family property in BC. Here's how they're divided tax-free, what's excluded, and the forms you need.
Registered Retirement Savings Plans are often among the most valuable assets a couple accumulates during a relationship — and they are among the most misunderstood when it comes to division on separation. This article explains how BC's Family Law Act treats RRSPs and how the federal Income Tax Act allows them to be transferred without triggering immediate taxation.
RRSPs as Family Property Under BC Law
Under Part 5 of BC's Family Law Act, family property includes all property that either spouse owns at the date of separation — including the full value of each spouse's RRSPs. The starting point is equal division (FLA s.81). However, the FLA carves out a critical exclusion: property owned by a spouse before the relationship began, and any growth in the value of that excluded property, remains that spouse's excluded property (FLA ss.85–86).
This means that if you had $40,000 in your RRSP when you moved in together (or married), that $40,000 — plus the investment growth attributable to it — is your excluded property. Only the contributions made during the relationship, and the growth on those contributions, are family property subject to equal division.
Calculating the Family Property Portion
To determine how much of your RRSP is family property, you need:
1. The RRSP balance at the date you began living together (or the date of marriage if you married before cohabiting)
2. The RRSP balance at the date of separation
The difference, broadly speaking, is the family property portion. Calculating the growth attributable to excluded contributions versus relationship-era contributions can be complex in long relationships with multiple accounts. A financial professional may be needed to prepare a formal calculation.
Keep account statements from the date of cohabitation if possible — if you don't have them, your financial institution may be able to provide historical statements.
Tax-Free Transfer Under Section 146(16) ITA
One of the most important rules for divorcing couples: you can transfer RRSP funds directly from one spouse's RRSP to the other spouse's RRSP on marriage breakdown — completely tax-free at the time of transfer. This is authorized under section 146(16) of the Income Tax Act.
The requirements are:
- The transfer must be authorized by a court order or a written separation agreement
- The transfer must be direct (institution to institution — the money never passes through either party's hands)
- CRA 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) must be completed
The person receiving the transfer does not include it in their income in the year of transfer. The growth is eventually taxed when the receiving spouse draws down the RRSP in retirement. This is critical: if you simply withdraw funds from your RRSP and then pay your spouse in cash, the full withdrawal amount is taxable income to you in the year of withdrawal. Avoid this mistake.
TFSAs — Different Rules Apply
Unlike RRSPs, there is no tax-free rollover mechanism for TFSAs on marriage breakdown. Each TFSA is valued at fair market value and treated as a family property asset. If equalization requires a payment, the TFSA holder may need to liquidate funds and pay the equalization amount in cash. The receiving spouse's TFSA contribution room is not affected by the payment — they can deposit the amount into their own TFSA only to the extent of their available contribution room.
Locked-In RRSPs and LIRAs
If some of your RRSP funds originated from a pension plan, they may be held in a Locked-In Retirement Account (LIRA). LIRAs have restrictions on early withdrawal — the funds are locked in until retirement. Division of LIRAs on marriage breakdown is governed by both federal and provincial pension legislation. A court order or written agreement is required, and the transfer must be into another locked-in account.
Workplace Pension Plans
Workplace defined benefit and defined contribution pensions are subject to different rules than personal RRSPs. Division of workplace pensions requires a pension division order or agreement, which must comply with the pension plan's rules and applicable federal or provincial pension legislation. The federal Pension Benefits Division Act applies to federally regulated pensions (federal public servants, banks, telecoms). BC's Pension Benefits Standards Act applies to provincially regulated pensions. Get specific legal advice before dividing a pension.
Pre-Relationship RRSPs — Documentation Is Everything
If you made significant RRSP contributions before your relationship began, the burden is on you to prove the excluded portion. If you cannot produce account statements from the date you began living together, the entire RRSP may be treated as family property. Request historical account statements from your financial institution as soon as possible after separation.
*This article is general information about BC family property law. It is not legal advice. Contact Sea to Sky Law™ for specific advice about your separation.*
Not necessarily. The family property portion — contributions and growth since the start of the relationship — is subject to equal division under BC's Family Law Act. Contributions made before the relationship and growth attributable to those pre-relationship contributions are excluded property you keep entirely.
CRA Form T2220 authorizes a direct RRSP-to-RRSP transfer on marriage breakdown. You also need a court order or written separation agreement authorizing the transfer. Your financial institution will have specific requirements.
Not at the time of the transfer, if done correctly as a direct transfer under s.146(16) ITA. You will owe income tax when you eventually withdraw the funds in retirement, just as with any RRSP withdrawal.
The amount contributed does not determine who owes what. What matters is the total value of family property each spouse holds at the date of separation. If one spouse has a much larger RRSP that is mostly family property, an equalization payment (possibly through an RRSP transfer) may be owed to the other spouse.