RRSP withdrawals as income for the purposes of determining spousal and child support is a tricky topic. First of all, deductions for RRSP contributions are added back to a paying spouse’s income for calculation of support purposes. But what happens when you cash out your RRSP and you are involved in a support dispute? In today’s blog Aidan O’Gorman and Fraser MacLean explain how RRSP’s and Spousal and Child Support cases are decided.
RRSP’s and Spousal and Child Support
When determining the appropriate amount for spousal support, the income of both parties involved is a central factor. In some circumstances, withdrawals from a Registered Retirement Savings Plan (RRSP) can become a significant and complicated consideration. This blog explores how RRSP withdrawals are viewed and factored into the process of determining spousal and child support.
Understanding RRSPs And Support
A Registered Retirement Savings Plan (RRSP) is a type of Canadian account for holding savings and investment assets. RRSPs have various tax advantages, and they are primarily designed to encourage residents to save for retirement. However, during a divorce, these assets become an important aspect of the financial picture and can influence the calculations for spousal support. RRSP Withdrawals can become a complicated and contentious issue due to tax implications and their impact on income calculations under the Spousal Support Advisory Guidelines.
RRSPs and Spousal Support
In Canadian family law, spousal support is intended to mitigate any unfair economic effects of a divorce by providing continued income to a lower-wage-earning or non-wage-earning spouse. To ensure a fair and equitable resolution, the court will consider each party’s income, including any funds withdrawn from an RRSP.
Typically, RRSP withdrawals are considered income for tax purposes, which means they may also be considered as income when determining spousal support. However, this is not always straightforward and depends on the circumstances surrounding the withdrawal.
The Complexity of RRSP Withdrawals
If regular, systematic withdrawals are made from an RRSP as part of an income strategy, these are likely to be viewed as income for spousal support purposes. The situation can become more complex when there are irregular or one-off withdrawals. This is outlined in further detail below.
In McKenzie v. Perestrelo 2014 BCCA 161 the following observations were made (paras 77-87):
- There is no clear rule about inclusion of RRSP withdrawals – this is left to the discretion of the judge hearing the case (Burzminski v. Burzminski 2010 SKCA 16 at para 11);
- RRSP income is presumptively part of a spouse’s income for child support and is not an exemption pursuant to Schedule III of the guidelines. The spouse seeking the exclusion bears the burden of demonstrating that treating his or her RRSP withdrawal as income would not lead to the fairest determination of income (Fraser v Fraser 2013 ONCA 715 at para 97-99)
- The fact that the RRSP was equalized in the division of property between the spouses does not mean that RRSP withdrawals will be excluded from income for child support purposes (see Fraser v Fraser 2013 ONCA at para 102 (adopting Aitken J’s reasoning in Stevens v. Boulerice  O.J. No. 1568)
- There is a general rule that “income generated from marital property which has already been divided should not be brought into income for purposes of determining the amount of support payable to a payee spouse” (Brown v Brown, 2012 NBCA 11 at para 15) – [that indicates that regard must be had to whether spousal or child support is at issue]
- Where RRSP withdrawals are regular and a spouse’s only source of income they are more likely to be included as income for the purpose of determining support (Edgar v Edgar, 2012 ONCA 646);
- On the other hand there is no presumption that “non-recurring withdrawals from RRSPs should automatically be excluded from income for child support purposes”: Fraser v Fraser, 2013 ONCA 715 at para 105
- Where a spouse has contributed to an RRSP and withdrawn that amount in the same year, it may be unfair to include both the contribution and withdrawal in the Guideline income;
- The court will consider the reason for the withdrawal. For instance, RRSP withdrawals have not been included as income where:
- The amount has already been accounted for in the division of assets and or was used to fund legal fees;
- The amount has been used to repay a debt incurred by the other spouse in joint names.
The McKenzie case provides a clear example of how Canadian courts may consider RRSP withdrawals in the context of calculating child and spousal support.
In McKenzie, the British Columbia Court of Appeal (BCCA) found that the RRSP withdrawals were non-recurring and were primarily used to cover legal expenses. Furthermore, the court considered that the withdrawals were not the respondent’s only income during that year. These factors led to the decision to exclude the RRSP withdrawals from the respondent’s income calculation.
This highlights that while there is a general presumption to include RRSP withdrawals in income calculations for support purposes, the specific circumstances surrounding the withdrawals can rebut this presumption. Factors such as the regularity of the withdrawals, their purpose, and the individual’s overall financial situation can all play a role in the court’s decision. It is crucial to have strong legal representation from the outset of your family matter to ensure the best chances of excluding RRSP withdrawals from income calculations, a factor that can significantly impact the determined amounts for Spousal and Child Support payments.
There is no clear rule about inclusion of RRSP proceeds in Guideline income; it is left to the discretion of the court. RRSP income is presumptively part of Guideline income as part of total income not exempted by Schedule III. The parent seeking to exclude the income bears the burden of demonstrating that inclusion would not lead to the fairest determination of income. While division of the property between parents on marriage breakdown is not determinative, there is a general rule that income generated from marital property that was divided will not be brought into income for purposes of meeting support payable to a payee parent. Regular RRSP withdrawals are more likely to be included, particularly if they are the sole source of income. It may be unfair to include in income a contribution and withdrawal made in the same year. A severance package, although a non-recurring amount, is substitution for a temporary loss of income stream and generally should be considered available to pay support.
Seeking Legal Advice
Considering the complexity and potential impact on spousal support payments, it’s crucial to obtain legal advice when RRSP withdrawals are a factor in your divorce proceedings. An experienced family law lawyer can provide guidance and help you understand the potential implications. At MacLean Law, our Family Lawyers are experienced at dealing with complicated asset division matters such as RRSP withdrawals as income for the purposes of determining Spousal Support. Delay is never a good course of action when family assets are in contention.
If you have questions on RRSP’s and Spousal and Child Support calculations, contact us promptly to ensure you get a fair result.