How to Transfer RRSPs After Divorce in New Brunswick (Tax-Free)

Withdrawing money from an RRSP to pay your ex-spouse their share of the marital property is one of the most expensive mistakes you can make in a New Brunswick divorce. The financial institution is legally required to withhold up to 30% in tax, and you must declare the full withdrawal as taxable income on your next return.

There's a way to avoid this entirely — but only if you follow the correct process.

The Tax-Free Transfer: Form T2220

Under Section 60 of the federal Income Tax Act, RRSP and RRIF transfers between spouses or former spouses can be executed tax-free when they're done pursuant to a written separation agreement or court order.

The mechanism is CRA Form T2220 — Transfer from an RRSP, RRIF, PRPP, or SPP to Another RRSP, RRIF, PRPP or SPP on Breakdown of Marriage or Common-law Partnership.

Here's how it works:

1. Section 1 — completed by the transferring spouse (the person whose RRSP is being divided)
2. Section 2 — completed by the receiving spouse and their financial institution
3. Section 3 — completed by the transferring institution, which executes the direct transfer of funds

The money moves directly from one registered plan to another. No cash changes hands. No withdrawal occurs. No tax is triggered.

What Happens Without Form T2220

If you skip the T2220 process and instead withdraw RRSP funds to hand your ex-spouse a cheque:

• The institution withholds 10% on amounts up to $5,000, 20% on $5,001 to $15,000, and 30% on amounts over $15,000
• The full withdrawal is added to your taxable income for the year
• You permanently lose that RRSP contribution room — it's gone forever
• You may be pushed into a higher tax bracket, compounding the cost

On a $50,000 RRSP transfer, the difference between using T2220 and withdrawing cash could be $15,000 or more in taxes.

Requirements for a Tax-Free Transfer

The transfer must meet these conditions:

• A written separation agreement or court order exists that specifies the RRSP division
• The transfer is made directly between registered plans (RRSP to RRSP, RRIF to RRIF, or cross-type as permitted)
• CRA Form T2220 is completed and retained by both parties and both financial institutions
• The transferring institution reports the transaction on a T4RSP or T4RIF slip but does not withhold tax

Important: Form T2220 is not filed with your annual tax return. Both parties and both institutions retain it as proof of a tax-free marital rollover. Keep your copy with your tax records.

TFSAs Are Different

Tax-Free Savings Accounts follow different rules. TFSA transfers between spouses during a divorce don't require Form T2220 because TFSAs are funded with after-tax dollars.

However, the transfer still needs to be executed correctly:

• The amount transferred to your ex-spouse's TFSA must not exceed their available contribution room
• If the transfer pushes them over their limit, they face a 1% per month penalty on the excess
• The transfer should be documented in the separation agreement

Work with both financial institutions to coordinate the TFSA transfer and confirm contribution room before executing.

Timing the Transfer

You can execute the RRSP transfer as soon as you have a signed separation agreement or final court order. You don't need to wait for the Certificate of Divorce.

However, the separation agreement must be in place first. Without it, the CRA won't recognize the transfer as a marital property settlement, and the tax-free treatment won't apply.

Plan the transfer before the end of the calendar year if possible. Tax slips are issued annually, and coordinating the transfer within a single tax year simplifies reporting for both parties.

The Locked-In Account Exception

If the RRSP funds originated from a pension transfer, they may be in a Locked-in Retirement Account (LIRA) rather than a regular RRSP. LIRAs have withdrawal restrictions — you can't access the money until retirement age.

When a LIRA is divided as part of a marital property settlement, the non-member spouse's share is typically transferred to their own LIRA, not a regular RRSP. The locked-in rules follow the money.

The New Brunswick After-Divorce Checklist walks through the registered account division process step-by-step — including Form T2220, TFSA transfers, and locked-in accounts — so you divide retirement assets without losing a dollar to unnecessary taxes.

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