TFSA – you don’t become the asset co-owner automatically.
If you had a TFSA before the marriage, your date of marriage deduction will increase, decreasing the value of your net family property.
No matter which partner’s name is listed as the account owner, the TFSA is a matrimonial asset that is to be equalized.
Be mindful that not all separations result in the equalization of TFSA assets.

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

Description

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.

Not all divorce or separations result in the equalization of TFSA's

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 financial disclosure).

Making a TFSA financial disclosure

financial disclosure of TFSA balance

With that said, you must offer a statement that reveals your TFSA balance, which should be listed on the marriage date. Documentation of your fiscal position – in addition to your spouse’s (both on the marriage date and separation date) – will simplify and expedite the process of calculating the net family property.

Where You Can Find Your TFSA

Your files, investment advisor, financial planner, web portals for online banking, and bank.

Who Has Document Ownership?

These documents are not shared by both partners – they belong to one or the other.

For what dates will the TFSA documentation be required?

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

TFSA financial disclosure Documents Details

The statement is typically sent to subscribers on a quarterly basis, usually in March, June, September and December. If you have not received your statement for the period, you may need to conduct inquiries.

Obtaining a digital copy of this document:

Obtaining a digital copy of this document

Many online sources allow you to download a digital copy to the device.
Most up to date Web Browsers allow you the option of “Print to PDF”
Scan your hard copy to a pdf.

Note: This can be done on a personal (home or work) scanner, or can be done at a retailer such as Staples Business Depot

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At DTSW:

We understand that navigating the complexities of separation or divorce is not an easy task, especially when it comes to understanding the financial implications. The division of assets, such as your TFSA account, can seem overwhelming. The rules and regulations, the tax implications, and the impact on your future financial stability are a lot to take in.

At Divorce The Smart Way (DTSW), we recognize the challenges you’re facing. Our team of professionals is here to guide you through this process, helping you understand the intricacies of asset division, tax implications, and the importance of a fair distribution of assets. We aim to minimize your tax burden and secure a stable financial future for you.

Remember, you’re not alone in this journey. We’re here to provide the support and guidance you need to navigate this challenging time wisely. We believe in a fair and equitable distribution of assets, and we’re committed to helping you achieve this.

Don’t hesitate to reach out to us. We’re ready to help you understand your financial future and make informed decisions. Take the first step towards navigating your divorce the smart way.

Schedule a Get Acquainted Call with our team of professionals today. Let us help you navigate your path forward.

Final Thoughts

Navigating the complexities of separation or divorce is a challenging process. It’s crucial to understand the tax implications and consequences that come with dividing valuable assets like your TFSA account. The contribution room, for instance, plays a significant role in the overall value of these assets.

A written separation agreement is a vital tool in this process. It helps to settle rights arising from the relationship and ensures a fair distribution of assets between the two spouses. It’s important to remember that the Canada Revenue Agency (CRA) recognizes these agreements, and certain assets can be transferred tax-free between spouses or common-law partners.

Understanding the rules around capital cost allowance, adjusted cost base, and capital gains is essential. It’s also important to consider the future of your retirement savings, including spousal RRSP contributions and CPP contributions. Remember, the transfer of registered assets can often be done on a tax-free basis.

The Canada Child Benefit, custody arrangements, and child support are other key factors to consider. It’s also important to remember that one spouse’s tax return can significantly impact the other spouse’s financial situation.

In the case of a common-law partnership, the rules can be different. For instance, the attribution rules for one party’s TFSA and the other party’s TFSA are subject to different regulations. Therefore, it’s crucial to understand these differences when dividing assets.

Lastly, it’s always advisable to seek professional tax advice. A competent tribunal or financial institution can provide guidance on how to handle the tax consequences of your divorce. They can help you determine the best way to transfer funds, whether it’s through cash, investing in other assets, or using the contribution room of either spouse’s TFSA.

Remember, the goal is to ensure a fair and equitable distribution of assets, minimizing the tax burden and securing a stable financial future for both parties. It’s a complex process, but with the right information and advice, you can navigate it wisely.

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About the Author:

Ken Maynard ADFA, Acc.FM

I assist intelligent and successful couples in crafting clear and straightforward separation agreements, ensuring a smooth transition towards a secure future. This is achieved in four meetings or less, sidestepping the excessive conflicts, confusion, and costs often associated with legal proceedings. You have the option to collaborate with me via video conference or in-person with a DTSW associate at any of our six Greater Toronto mediation centers, located in Aurora, Barrie, North York, Vaughan, Mississauga, and Scarborough.

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