What is the Fate of a TFSA When Couples Separate – Divorce?

The TFSA (Tax-Free Savings Account) program started in 2009. With it, people 18 years of age and older can set some money aside for the rest of their lives, tax-free (assuming they have a valid SIN number). TFSA contributions cannot be used as an income tax-deductible. Any money that is contributed – in addition to any income the account earns (for instance, capital gains and investment income) is typically tax-free, all the way to the withdrawal period. Other costs relative to the TFSA – such as administrative fees – aren’t deductible. Any money borrowed or interest earned for a TFSA cannot be used as a deductible, either.

In the province of Ontario,  spouses are allowed to carry debts and own property in her or his personal name. However, when you wed someone that already has assets – including TFSAs – you don’t become the asset co-owner automatically. Ownership of an asset is attributed to the spouse. Conversely, if your partner had a TFSA before the marriage, their date of marriage deduction amount will increase. It may also decrease the value of their net family property.

A net family property quantifies a marriage’s forward progress. It starts from the marriage date and goes all the way to the separation date.

The assets of a spouse – no matter which partner’s name is listed as the account owner – are regarded as matrimonial assets that are to be either equalized or divided. Be mindful that not all divorce or separations result in the equalization or division of those assets. Both partners could agree that debts or assets of equivalent value could to be swapped to cover any equalization owed. Alternatively, both partners could reach an agreement that nothing gets divided at all. The latter decision would not affect your assets if you owned them. Whatever the spouse agrees to do about assets, these decisions should be made based on a comprehensive series of facts (a.k.a. a disclosure).

You may need these documents inclusive of the separation date and the cohabitation/marriage date, among other periods.