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Financial Issues This forum is for discussing any of the financial issues involved in your divorce.

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Old 06-30-2017, 06:14 PM
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Default RRSP question - cashing in = income?

Hello, I've been away for a while. Having some legal issues with ex. Got a good lawyer but he isn't moving as quickly as I would like. I have a few questions and I figured you-all would be a good place to start. Here's the first:

Calculating income: We did our annual exchange of income details. Ex cashed in about $40K in RRSPs in 2016. He says that only 50% of this should count towards his income because it was a one-time thing, and that CRA supports this. This does not make sense to me, because we recalculate every year, and income is income is income, RRSP or employment.

Any thoughts about this one?
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Old 06-30-2017, 06:38 PM
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Quote:
Originally Posted by stripes View Post
Hello, I've been away for a while. Having some legal issues with ex. Got a good lawyer but he isn't moving as quickly as I would like. I have a few questions and I figured you-all would be a good place to start. Here's the first:



Calculating income: We did our annual exchange of income details. Ex cashed in about $40K in RRSPs in 2016. He says that only 50% of this should count towards his income because it was a one-time thing, and that CRA supports this. This does not make sense to me, because we recalculate every year, and income is income is income, RRSP or employment.



Any thoughts about this one?


Not sure how accurate this is, however in my opinion (and my husbands lawyer supported this at the time) a one time withdrawal does not count towards income. But also that income would already come into play and he would have paid CS already on that income correct? Essentially you are looking to double dip. Over the years he paid CS based on his total income. From that total income he invested. If he is only pulling out the principal amount he has already covered CS for that amount.

When we bought our house my husband pulled from his RRSP and that income did NOT come into play for CS purposes because it was a one time withdrawal. Again, not sure how accurate this is, however his lawyer supported this


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Old 06-30-2017, 06:51 PM
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I have been reading a lot of case law and, most of the cases where RRSP withdrawals occurred, it was subtracted from the person's income.
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Old 06-30-2017, 07:12 PM
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Hmm. From the limited checking I've been doing, it sounds like RRSPs are presumptively considered income - the onus is on the person doing the withdrawals to make the case that they should be excluded. If it's a one-time withdrawal (which this was), then it might not count as income, esp. if it was used to pay legal bills for the divorce or equalization. Ex says he cashed them to pay for his divorce from his second wife (yup - one other lucky lady after me) and to pay down credit card debt incurred with second wife as part of their equalization. In other words, they weren't cashed in order to pay his living expenses or to pay for anything that benefited Kid.

It's all moot at the moment because he hasn't provided an NOA, so I really have no idea what his legitimate income is. This is just the sort of thing that he would stake out as a hill to die on, so I was wondering what others thought.
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Old 07-01-2017, 10:39 AM
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I have discussed this issue in my posts before. There are precedents for it being included and not included. In my opinion (and I went to trial over this issue), RRSP's are NOT income for child and spousal support.

This is savings from a prior year. You have already paid support on this income already.

Think of it this way. How would you like it if he made RRSP contributions and deducted it from his support payments? You'd be screaming blue murder. He would get to accumulate an asset financed by reduced support payments.

I'd drop this nonsense and agree that it is not income for support purposes.
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Old 07-01-2017, 12:44 PM
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RRSP - "Registered Retirement Savings Plan" - just deferred money you cash in at a time when you make less income. It is a purely tax maneuver IMO and should not be considered when calculating income for purpose of determining support.
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Old 07-01-2017, 03:21 PM
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1) Should it be income?

Clearly not. Either the money was first earned before separation (in which case this money has been equalized), or the money was earned after separation in which case support has already been paid from this income. How is this any different from sticking money under a mattress and then retrieving it 10 years later?

2) Is it considered income?

Shockingly often. That said, I think it is frequently a form of income imputation.

eg.

Normal income: $70,000
This year's income: $30,000
RRSP withdrawal: $20,000

The unfortunate soul didn't make his normal income, so he took money out of the RRSP to cover. Rather than impute income, the judge says "RRSP is income" and now the guy has made $50,000 instead of $30,000. Everyone wins!

Well, almost everyone.
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