Registered Retirement Savings Plan
A Registered Retirement Savings Plan (RRSP), or just Retirement Savings Plan (RSP), is a kind of Canadian account for keeping savings and investment assets, introduced in the late 1950s to encourage savings for retirement by employees and self-employed people. RRSPs have several advantages when it comes to tax deductions when compared to making investments outside of tax-preferred accounts. The RRSP is mostly funded from deductions from total income; hence, it reduces income tax payable for the time in a review in which the contributions are claimed.
Meanwhile, a divorce is the legal ending of a marriage. It can be quite an ugly situation depending on the things involved; children, properties, investments, and money. It can be as nasty as the wedding was beautiful, sometimes much worse. Divorce separates a married couple, leading to changes in where they live; it also scatters their retirement plans.
Who gets to leave with what after a divorce?
When a couple divorces, they split their assets. In cases when they are in the form of registered plans, dividing assets evenly and amicably can become about avoiding tax cuts. The Income Tax Act stipulates tax-free rollovers of RRSPs between divorced couples in cases where there is a written pre-nuptial agreement; this ensures there is a balancing of registered assets without unnecessary tax deductions.
Getting back on track with RRSPs after a divorce isn’t as complex, though, but you would have to come up with a new comprehensive financial plan, this would have to reveal a person’s current economic reality and the development of an investment plan that would go well with it. It also means considering new expenses and source(s) of revenue as well as forecasting what will be needed for retirement.
Alimony and child support payments are taxable, but they also offer room for RRSP contributions. In order to cover tax and investment funds, as well as other new household expenses, setting aside money is essential.
Divorce often incurs high costs such as legal fees, counseling sessions, and credit card debt. Some people recoup these costs by cashing in on their RRSP. People stop contributing to their RRSPs when they get close to retirement, without realizing that it’s harder to restart later on.
Spousal RRSPs
Spousal RRSP is just a little different than the regular RRSPs. In the spousal RRSPs, a person deposits money into another Registered Retirement Savings Plan account in their spouse’s name. The person making this investment gets to benefit from the tax deduction.
In the case of a divorce, spousal RRSPs are usually handled similarly like the rest of the assets belonging to the erstwhile couple. At Tailor Law, we have divorce lawyers in Mississauga and family law lawyers in Mississauga who can answer your questions about divorce and separation.
