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  • I cashed in my spouses RRSP-Advice?

    Hi, I split with my wife and we had about $20,000 in a spousal RRSP. There were debts and costs that were jointly owned but I continued to pay to preserve my (our) credit rating. At the time I just thought well, since the RRSP will eventually split in an equalization of assets, I will cash it in and pay joint debt. I did do this. In no way did I use any of the funds for my pleasure.

    My thinking was that, she tried to write a cheque for a large amount of a line of credit, which would have been devastating. She thought there was more room available and the cheque didn't clear. She also took a large cash advance from our Visa, which I was stuck paying. And lastly, she cashed in her TFSA for her spending. So I was trying to protect the whole financial situation by cashing in the RRSP and using it towards the joint debt before things went right out of control.

    Now tax time is approaching and I'm wondering how the tax bill will play out. Also, I am wondering if, I did anything illegal or wrong by doing all of this? How will the courts look at this situation?

    Any thoughts or advice?

    Thanks in advance

  • #2
    Ten precent penelty for withdrawal (taxes).

    I don't imagine that's really a very 'kosher' move, but if you keep all the documents that prove you used it to pay down your joint debt, I don't see much coming out of it.

    Comment


    • #3
      If you moved the funds legally then you are fine.

      Extinguishing joint assets to pay joint debts is a prudent move. It sounds like she is seeking to accumulate funds in her control. You may wish to take steps to prevent this. While the money will eventually wash out in equalization, if you are in a bind for the next year or two because you don't have access to it - or, worse yet, legal advice because you now cannot afford a lawyer - then that is prejudicial to your situation.

      Comment


      • #4
        It's a mess, you need to take the steps to separate your finances from hers as soon as possible if you haven't already done so.

        Close joint accounts, lines of credit and credit cards as soon as you can.

        Unfortunately the "first one to the bank" has the advantage in removing/draining any joint assets. In my case, because I had let my ex wife manage the finances for the family, when she left, she planned in advance and took every last penny. At least we didn't have any joint credit cards or lines of credit. I never got any of it back. Due to stalling tactics she was never forced to disclose properly before we settled.

        As OrleansLawyer points out, "first one to the bank" may get the funds for now, but eventually equalization will have to be paid out so you might get something back.

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        • #5
          I did the same thing, wife did all the banking and at that point I was clueless 100% - I depended on her to just be her, us, for the last twenty years - the first move for me was our Bank Manager, he laid out the grand news. I returned home and went to sell anything of value in all those stocks she bouught - there wasn't much, most of the companies were already delisted but she had just taken another few thousand just prior and bought more --- I sold anything that had reasonable value, I left the ones that might have 10 or 20 cents on the dollar left in value.

          Evidence (wish I had this recorded!!) Sir, you can't make a transaction on your account unless you have your password/pin number - I called Ex, she first refused, she then said she would take responsability and I insisted only one thing - you took cash money to play with her penny stocks when you had money outstanding on the LOC??? She gave me the code finally, I sold, I paid off our joint debt (I had no idea what the LOC was for but I cleared it.

          The judge, perhaps with one of the few positive assumptions to date, just said there was at least one of us who respected their financial responsability to payoff the creditors before anything else. Judge was not going to penalize me for this but at the same time it was wrong for me to do this. This is the very issue I am making note of my ex doing this very thing over several years, none-the-less I took joint funds "on my own accord" and unilaterally made the decision for both of us. My motives may have been good but it could have been ex's choice to carry that loan for as long as she could.

          And yes my ex made a point of draining or refusing to acknowlege my right to ownership to alot of joint cash or my personal retirement savings and I have been reasonably assured that the bank accounts with the statements will be worked out as part of the equalization process.

          Comment


          • #6
            Thanks for the pointers....All I was really trying to do was some "preventative maintenance" before all hell broke loose.

            I have closed off all joint accounts except my mortgage, which is through Manulife and is a giant line of credit. I can't close that one until our case is settled, but there is no room left on it anyways.

            Comment


            • #7
              Originally posted by bgjazz View Post
              Now tax time is approaching and I'm wondering how the tax bill will play out.
              Well, you'll have to pay tax on it, if course. Regardless of how much was withheld when you withdrew, you'll be on the hook for likely 25-45% tax (i.e. $5000-$9000) - depending on what other income you have. Did you keep that much back?

              As long as the debt was clearly 'shared', then the only problem I see with this is that your lump sum withdrawal resulted in you paying more tax than you would have if withdrawn in smaller bits.

              Comment


              • #8
                It seems to me that you are mixing together debts and assets before separation with debts and assets after separation. Remember that on the date of separation one became two and that includes debts/assets that were in only one person's name.

                What you should do, to be fair, is to equalize as of the date of separation. Sharing all debts and assets as appropriate on that date. An equalization payment should be made based on that date, however one must also consider assets/debts that continued to be in BOTH names.

                Assets/debts that continued to be in BOTH your names after separation, should be treated as owned together and any value changes assigned to both of you until disposed of.

                Assets/debts that were on only one person's name on date of separation become the responsibility of that person with respect to value (up or down) etc. So your RRSP and what happened to it after separation has nothing to do with your ex.

                So, regarding your RRSP. This is your asset. Based on its value on date of separation you would owe your ex, half of its equivalent value (1/2 the RRSP transferred to her RRSP, or an equivalent lesser cash value).

                What you did with your RRSP after that date has nothing to do with your ex. The tax you pay on it, and the associated penalty, is yours as you were separated.

                Of course, any money you put towards joint debt that continued to be joint after separation, is counted for as paying off your portion of the joint debt and not any part of her joint debt - this should be accounted for when you finally dispose of joint assets/debts.

                Keep it simple - up until you separated, all assets/debts were 'shared' regardless of who's name was on it.

                Then you equalize as of date of separation. Equalization shares net worth accumulated during the marriage evenly. However, when you continued to have shared debts and assets after separation, those remain shared, but if you paid a portion of a shared debt down, that was your portion of the shared debt, not hers.

                After separation - you only share the responsibility for shared debt. Individual debt and assets (like your RRSP) and what happens to it, becomes the owners responsibility. Equalization payment have to reflect this.

                I hope I have explained myself clearly.
                Last edited by billm; 01-10-2013, 08:19 PM.

                Comment


                • #9
                  Firstly, it was a spousal RRSP so as far as taxes go, I'm not sure who would claim that as income??

                  Secondly, in the previous post, I have considered what was debt/assets as of date of separation. For example, $20,000 Line of credit jointly owned was paid down with that RRSP but not Loan B, which I owned solely. As in my first post, she took a cash advance on the visa for $3500 and then I was stuck paying it so I used the RRSP to pay that portion of the Visa off.

                  My thinking was that if I didn't do this (cashing in RRSP to pay joint debt), she would cash it in and spend it on herself and I'd be stuck with all the debt payments...at least until an equalization payment is determined.

                  I've been servicing all debts, sole and joint, and have been paying the mortgage and upkeep in the house since separation. I do understand that I am living in the house (which she abandoned by choice) so she's not on the hook for all house costs, but I think she is partially responsible for the other joint debts.

                  Comment

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