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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 07-14-2010, 02:03 PM
LifeMovesOn LifeMovesOn is offline
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Default Equalizing RRSP's and tax effect

My ex and I cannot agree on this one point.
At date of separation, I had $90,000 in RRSP's and my ex had $50,000 for a combined total of $140,000. I have agreed to rollover an equalization payment of $20,000 using the T2220 form so that we each leave the marriage with an equal amount in RRSP's $70,000 each.
My ex states that she needs the cash and wants me to pay her $20,000 outside of the RRSP. But if I cash out $20,000, I will incur taxes on that balance at around 40% But she claims that her payment should be tax free.
Am I not correct that she is entitled to either $20,000 within the RRSP or $20,000 less approx 40% tax ($12,000)outside of the RRSP?
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Old 07-14-2010, 02:16 PM
ONdad ONdad is offline
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That's what I'd think too, though I don't play a lawyer on TV.
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Old 07-14-2010, 02:19 PM
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dadtotheend dadtotheend is offline
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Yes, that thinking is sound, assuming you are in a 40% bracket, i.e. taxable income b/w $81K and $126K.

If she is in a lower bracket, get her to take the money out and split the tax. It will cost you both less money.
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Old 07-14-2010, 03:35 PM
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Quote:
Originally Posted by LifeMovesOn View Post
My ex states that she needs the cash and wants me to pay her $20,000 outside of the RRSP. But if I cash out $20,000, I will incur taxes on that balance at around 40% But she claims that her payment should be tax free.
I need the cash too. While you're cashing out RRSPs to pay her money you don't owe her, can you cash me out $20k too?
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Old 07-14-2010, 05:07 PM
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Quote:
Originally Posted by dadtotheend View Post
...

If she is in a lower bracket, get her to take the money out and split the tax. It will cost you both less money.
Why split the tax? - they should balance the RRSPs and be done with it. If she wants to cash out some RRSPs, what does that have to do with the him (aka LifeMovesOn)? She should cash them out and let her deal with the tax implications.

Now if she was in a higher tax bracket, then maybe do some deal behind the scenes, to lower the tax penalty, but again, the tax penalty is her problem alone.

Last edited by billm; 07-14-2010 at 05:10 PM.
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Old 07-14-2010, 05:08 PM
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Originally Posted by LifeMovesOn View Post
... But she claims that her payment should be tax free....
lol, typical ex mathematics and thinking...
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