Home Buyers Plan Repayment in Divorce

Significant changes to HBP in the March 2019 federal budget with a direct impact on separating couples.
Withdraw tax-free funding from their Registered Retirement Savings Plan (RRSP) to purchase a new home.
The HBP withdrawal balance outstanding on the date of separation is a personal debt to be equalized.
If your spouse has a Home Buyers Plan balance, you do not automatically become responsible for repayment.
It is required to be paid back to the RSP in full over a fifteen-year period

Using RRSP for down payment - First Time Home Buyer RRSP Withdrawal

The Home Buyers’ plan (HBP) has been a popular method for a first-time home buyer in Canada to access funds in your RRSP contributions for a down payment to buy a home, aka access funds necessary to re-enter into the real estate market.

Since the HBPs inception in 1992, it has made it possible for a qualifying home buyer to withdraw tax-free funding from their Retirement Savings Plan (RSP) and put it towards purchasing a new home or even building one. A remarkably handy tool for anyone looking to purchase in competitive markets such as Toronto or Vancouver, by allowing for a larger down payment.

If you want to qualify for the Home Buyers’ Plan and other qualifications, you will need to be considered a “first-time Home buyer” which means you have not lived in the property you owned within the last four years or haven’t lived in a home owned by a spouse or common-law partner in the last four years.

The Home Buyer’s plan has undergone significant changes in the March 2019 federal budget. With several new expansions being introduced to the program that has a direct impact on separating couples.

Using RRSP for down payment - The home buyers plan?

The Home Buyers’ Plan (HBP) is a program that allows you to withdraw funds from your registered retirement savings plans (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability. HBP withdrawal balance outstanding on the date of separation are personal debts. To that end, Home Buyers Plan repayment should be addressed in separation and divorce.

In Ontario, each spouse is capable of owning property and carry debts under their own names. This implies that in the event of a separation if your spouse has a debt such as a CRA Home Buyers Plan balances, you do not automatically become responsible for Home Buyers Plan repayment.

The Net family property measures the forward progress you make during the marriage from the date of your marriage to the date of your separation, this will include paying off your debts. The debts of your spouse are considered joint matrimonial debts to be divided or equalized, regardless of whose name is on the account.

It is vital to understand that not every separation or divorce will result in a spouse dividing or equalizing their debts. Your spouse and you may agree that other assets or debts of equal value can cover anything that is owed, or you might agree not to divide anything at all, which would leave your debts unaffected.

RRSP Home Buyers Plan Repayment - financial disclosure

Whatever you and your spouse decide about your home buyers’ plan repayment, it is a wise practice to decide guided with a complete set of facts (known as a financial disclosure).

To this end, please provide your statement regarding your loan balance, the date of marriage, as well as the date of separation. It will help make calculating your net family property quicker and simpler.

In the event of a divorce, you, your spouse, and your legal counsel will need to be aware of all assets between yourself and your spouse. To do this, both parties are required to present information on all assets, income, and debts. This is known as financial disclosure and is crucial for both parties to be honest to reach a divorce settlement.

RRSP First Time Home Buyer Repayment

You can locate your CRA Home Buyers Plan through your accountant, the Canadian Revenue Agency, Notice of assessment, Tax Preparation Professional and your Tax Files.

Your NOA will substantiate your CRA Home Buyers amount balance. The balance should be entered in your liabilities section of your financial statement when you are preparing a separation agreement or the financial disclosure form required in your jurisdiction.

Where to Locate your Canadian Home Buyers financial disclosure

If you require an income and deduction printout which will also show the information on your latest notice of assessment or notice of reassessment, then call 1-800-959-8281. To find the information you require online, then click this link or paste it in your browser: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/ssmnt-eng.html

Or to create a CRA MyAccount Login to access documents, then follow this link: http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/myccnt/menu-eng.html

How do I collect and handle these documents?

Who owns this document:

These documents are owned on an individual basis between spouses and are not jointly owned.

ost online sources will allow you to download a digital copy, usually in .pdf form, to your personal device. You may also “print to .pdf” with most up-to-date web browsers allowing you to print to a file or scan your hard copy to .pdf format. You can do this with your office scanner, or a business depot that offers the service such as Staples.

Home Buyer Plan changes that impact divorce.

Here are a list of changes and how they can benefit separating couples

An Increase to the Home Buyers Plan Maximum Withdraw

Under the Former HBP criteria, a buyer could withdraw a total of $25,000 from their RSP, or $50,000 if both partners were qualified as first-time buyers. The home buyers plan maximum withdraw has been extended to $35,000 for each partner, making a total of $70,000. This is the first time in ten years the maximum has been altered, and the changes went into effect immediately on March 19^th, 2019.

However, it is important to remember that the timeline of fifteen years to repay the RSP funds has remained unchanged. If you are considering withdrawing a larger amount, you will want to budget for greater annual payments, especially when you factor how your mortgage debt obligations impact your daily finances.

Home buyers who have made an HBP withdrawal in 2019 before the changes had been announced are capable of making a second withdrawal to reach their new amount of $35,000 per partner. The first withdrawal must have been made between January 1^st, 2019, and March 19^th, 2019. At least one home buyer must satisfy the requirement for first-time buyers. However, all HBP withdrawals made before the January 1^st, 2019 changes can not be retroactively increased under the new maximum.

An Individual Can Retain Their First-Timer Status After a Separation

Another significant change made to the HBP is that individuals who have experienced a breakdown in marriage such as a separation, divorce, or a split from a common-law partner, can again be considered a first-time home buyer and access the HBP to purchase or build their new home. Or they are able to buy out their partner’s share of their former matrimonial home if they are living separate and apart from one another as a result of the breakdown in their marriage.

Under the previous criteria, individuals who had separated would not have qualified as first-time home buyers since they had lived within a home owned by their significant other, regardless of whether they financially contributed to it. These changes will come into effect in 2020.

It is important to know that if a borrower has a new spouse or common-law partner at the time of withdrawal, they are barred from living in a home owned by their new partner as this would void their status as a first-time buyer for four more years.

Conclusion

The HBP can be a very useful tool to access additional funds needed to purchase a home for first-time buyers. However, the plan should not be seen as free cash and rather as a deferral of retirement savings. It is required to be paid back to the RSP in full over a fifteen-year period, which is an ongoing financial commitment. It will also reduce the earning potential of your RSP, since funds that had been pulled won’t incur interest or gains until they are returned.

Still, there is a reason the HBP is a popular method since it offers a flexible, and tax-free way to boost the down payment on a home. These recent changes will give savers even greater access to the funds they need, helping those coming out of a divorce or break-up financially move on in this market.

If you require more information on the Home Buyers’ Plan, including eligibility and other info, visit the Canada Revenue Agency’s official website.

Would you like to learn more? Get in touch for a Get Acquainted Call to learn more about finding a separation agreement with a soft landing.

About the Author:

Ken Maynard CDFA, Acc.FM

I assist intelligent and successful couples in crafting rapid, custom separation agreements that pave the way for a smooth transition towards a secure future. This efficient process is achieved in about four meetings, effectively sidestepping the excessive conflicts, confusion, and costs commonly linked to legal proceedings. Clients have the flexibility to collaborate with me either via video conference or in-person through 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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