Dividing RRSPs in a BC Divorce

RRSPs accumulated during a relationship are family property under BC's Family Law Act and subject to equal division. The good news: the Canada Revenue Agency provides a specific mechanism for transferring RRSP funds between separating spouses without triggering any tax. The bad news: doing it wrong creates an immediate and entirely avoidable tax bill.

The Tax-Free Transfer Mechanism

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) is the form that makes tax-free RRSP division possible.

The requirements are specific:

1. The transfer must be institution-to-institution. Funds move directly from the transferring spouse's financial institution to the receiving spouse's RRSP account. No cheques to individuals, no interim cash withdrawals.
2. You need a written separation agreement or court order. The CRA requires a documented legal basis for the transfer. An informal email agreement between spouses doesn't qualify.
3. The sending institution completes Form T2220. The financial institution handles the paperwork and must not issue a T4RSP slip to the transferring spouse (which would trigger a tax event).
4. The receiving institution credits the account without issuing a deduction receipt. The transfer goes into the recipient's RRSP, but since no "new contribution" occurred, there's no tax deduction.

When executed correctly, the full pre-tax value of the RRSP transfers intact. No withholding tax, no inclusion in income, no reduction in contribution room.

What Happens If You Skip Form T2220

If a spouse withdraws RRSP funds and hands the cash to the other spouse — or if the transfer isn't backed by a qualifying separation agreement — the CRA treats the withdrawal as income to the transferring spouse. Withholding tax is deducted immediately (10-30% depending on the amount), and the full withdrawal is added to the transferring spouse's taxable income for the year.

On a $100,000 RRSP, that mistake can cost $25,000 to $40,000 in taxes, depending on the spouse's marginal tax rate. The money is gone and doesn't come back.

Spousal RRSP Attribution Rules

If one spouse made contributions to a spousal RRSP (an RRSP registered in the other spouse's name), special attribution rules apply. Under CRA's three-year attribution rule, withdrawals from a spousal RRSP within three calendar years of the last contribution are attributed back to the contributing spouse as income.

On relationship breakdown, this attribution rule is overridden if the transfer is done properly via Form T2220 as part of a separation agreement or court order. The key is ensuring the transfer is structured as a T2220 rollover, not as a standard withdrawal.

Calculating the RRSP Division

The portion of each RRSP subject to division is the value accumulated during the relationship — from the start of cohabitation to the date of separation. Pre-relationship RRSP balances are excluded property and stay with the original owner.

This requires documenting the RRSP balance at the relationship start date and at separation. If you don't have historical statements, your financial institution can usually provide them, and CRA's My Account portal shows contribution history.

If an RRSP contained $30,000 at the start of the relationship and $110,000 at separation, the family property portion is $80,000. Each spouse is entitled to $40,000 of that amount. The transferring spouse keeps their pre-relationship $30,000 as excluded property, plus their $40,000 share, totalling $70,000. The receiving spouse gets a $40,000 transfer into their own RRSP.

RRIFs and Other Registered Accounts

The T2220 mechanism also covers Registered Retirement Income Funds (RRIFs), Pooled Registered Pension Plans (PRPPs), and Specified Pension Plans (SPPs). If a spouse has already converted their RRSP to a RRIF and is drawing income, the same tax-free transfer rules apply — provided the transfer is institution-to-institution, backed by a separation agreement or court order, and processed on the T2220 form.

TFSAs (Tax-Free Savings Accounts) don't use the T2220 process. TFSA transfers on relationship breakdown follow different CRA rules and are addressed separately from RRSPs.

Timing Considerations

The T2220 transfer should happen after the separation agreement is signed but ideally before the divorce is finalized. There's no statutory deadline for the transfer itself, but delays create risk: market fluctuations change the value of the RRSP between the agreement date and the transfer date, and either spouse's financial circumstances could change.

If the market drops 20% between when the agreement specifies a $40,000 transfer and when the transfer is actually executed, the transferring spouse may argue the amount should be recalculated. Having both parties agree on a transfer date (or a formula tied to the actual transfer date value) prevents this dispute.

Steps to Execute the Transfer

1. Determine each spouse's RRSP values at relationship start and separation
2. Calculate the family property portion and each spouse's equalization share
3. Finalize the separation agreement (or obtain a court order) specifying the transfer amount
4. Contact both financial institutions to initiate the direct transfer citing Form T2220
5. Confirm that no T4RSP slip is issued to the transferring spouse
6. Verify that the receiving institution credits the account without issuing a contribution receipt

Common Mistakes to Avoid

• Withdrawing RRSP funds and transferring cash. This triggers immediate withholding tax and includes the withdrawal in your taxable income. Always use the institution-to-institution T2220 process.
• Delaying the transfer after signing the agreement. Market fluctuations between the agreement date and the actual transfer can create disputes about the correct transfer amount.
• Forgetting about employer group RRSPs. Contributions to a group RRSP through payroll deductions are still family property. Request a statement from your employer's plan administrator showing the balance at both the relationship start and separation dates.
• Not accounting for the tax-deferred nature of RRSPs. An RRSP worth $100,000 is not worth the same as $100,000 in a TFSA or non-registered account, because RRSPs will be taxed on withdrawal. Sophisticated property division adjusts for this deferred tax liability when equalizing the overall split.

The British Columbia Divorce Financial Split & Asset Division Guide includes worksheets for calculating the family property portion of each registered account and a step-by-step checklist for the T2220 transfer process.

See more British Columbia guides →