Dividing RRSPs in a Northwest Territories Divorce

RRSPs are one of the easier assets to divide in a divorce — if you use the right method. The wrong approach can trigger immediate taxes, permanently destroy contribution room, and leave you with far less than your share.

RRSPs Are Family Property

Under the NWT Family Law Act, the RRSP contributions and growth accumulated during the marriage (from the date of cohabitation to the date of separation) are family property subject to equalization. Pre-marriage RRSP balances and post-separation growth are excluded, provided the accounts were kept separate and the pre-marriage balance can be documented.

The Tax-Free Transfer: Form T2220

The correct way to transfer RRSPs between divorcing spouses is a direct transfer under Section 146(16) of the Income Tax Act, executed using CRA Form T2220 (Direct Transfer Under Subsection 146(16), 146.3(2), 147.5(21) or Paragraph 146(21)(a)).

With this method:

• The transfer is completely tax-free — no withholding tax, no income inclusion
• The receiving spouse's RRSP contribution room is not affected — the transfer does not use up their available room
• The funds move directly between financial institutions without passing through either spouse's hands

The transfer requires either a signed separation agreement or a court order specifying the RRSP division. The financial institution will not process the transfer without one.

The Costly Mistake: Cashing Out

Some spouses withdraw RRSP funds to pay an equalization settlement in cash. This is almost always a mistake.

When you withdraw from an RRSP:

• The financial institution withholds 10%–30% tax at source, depending on the amount
• The full withdrawal is added to your taxable income for the year, potentially pushing you into a higher bracket
• You permanently lose the contribution room — it never comes back

A $50,000 RRSP withdrawal could cost $15,000–$20,000 in taxes, meaning you need a $50,000 RRSP to deliver only $30,000–$35,000 in cash. The direct transfer avoids this entirely.

Valuing RRSPs for Equalization

Because RRSP withdrawals are taxable, a dollar in an RRSP is not worth the same as a dollar in cash. When comparing an RRSP against a non-registered asset (a savings account, a TFSA, or home equity), the RRSP should be discounted by an estimated tax rate — typically 20%–30% depending on the owner's expected income in retirement.

A $100,000 RRSP is worth roughly $70,000–$80,000 in after-tax terms. Equalizing it against $100,000 in a TFSA without the discount gives one spouse an unfair advantage.

Spousal RRSPs

If one spouse contributed to a spousal RRSP during the marriage, the contribution attribution rules apply. Withdrawals from a spousal RRSP within three years of the last contribution are taxed in the contributor's hands, not the plan holder's. Factor this into your timing if a withdrawal (rather than a direct transfer) is being considered.

The Northwest Territories Divorce Financial Split Guide walks through the Form T2220 process and includes worksheets for calculating tax-adjusted RRSP values in your equalization.

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