Does an RRSP Withdrawal Impact a Child Support Payment?

Son and mother

Written on behalf of Shariff & Associates

When parties go through a divorce or separation, it is common that one party will be required to pay the other support, the amount of which will be determined by the payor’s income. In the case of child support obligations, the federal Child Support Guidelines (the “Guidelines”) help calculate the quantum of support that should be paid. However, non-recurring income complicates this formula. Specifically, the treatment of Registered Retirement Savings Plan (“RRSP”) withdrawals can be characterized as income, however, courts may exclude RRSP receipts from the calculation of income. Any determination will be dependent on the specific facts. 

Funds From RRSP are Presumptively Counted as Income

Section 16 of the Guidelines provides that a spouse’s income for child support purposes is determined according to the Total Income on the Canada Revenue Agency’s T1 General form. However, under 17(1) of the Guidelines, if a court decides that this is not the fairest determination of income, the court can look to “the spouse’s income over the last three years and determine an amount that is fair and reasonable in light of any pattern of income, fluctuation in income or receipt of a non-recurring amount”. 

Treatment of RRSP income also raises concerns about double recovery, where there are both property and support claims, when the asset has been equalized and amounts are later considered income for the purposes of support. In A.E. v. A.E., the Ontario Superior Court of Justice accepted that the inclusion of an RRSP in the calculation of an equalization payment is not, by itself, sufficient grounds to exclude it from child support. However, the court can consider the particular circumstances to determine whether the inclusion of the RRSP as income reaches a level of unfairness to rely on section 17(1) instead. 

RRSP Subject to Equalization Does Not Automatically Exclude it From Child Support Income Calculation

In Fraser v. Fraser the Ontario Court of Appeal considered whether RRSP income should be treated as income for child support purposes. The father argued that the RRSPs were equalized and that it was utilized in a single event to aid in the purchase of a house. The Court did not accept that view and instead looked to the decision in P.(J.M.) v. K.(T.L.), where the judge indicated that the treatment of RRSP receipts as income for purposes of child support is discretionary under the Guidelines. Further, where an RRSP has been subject to equalization can be an important factor weighing against the inclusion of RRSP funds as income. The Court emphasized that section 16 of the Guidelines is clear in stating that income for child support is calculated according to the T1 tax form. As RRSP income is captured as part of the total income on the form, it is considered part of a spouse’s income available for child support. 

Additionally, the Court accepted that just because an RRSP was subject to equalization did not mean that RRSP withdrawals must be excluded from income for child support. Equalization is a matter between the parents, and it does not follow that an available source of income that could fund child support should be excluded because of any dealings between the parents. 

RRSP Receipts Might not be Considered Income for Support Purposes 

The onus is on the payor-spouse to justify any deviation from the standard section 16 method of calculating income. Moreover, this is a fact specific analysis that is determined by what is appropriate in the circumstances of a specific case. In Dillon v. Dillon, the Nova Scotia Court of Appeal held that it would not be a fair calculation of the support payor’s income to include RRSP withdrawals as income in the same year that an equivalent amount is deposited into the RRSP. This principle was later accepted in Ontario in Shortt v. Shortt. Fraser v. Fraser established that the Guidelines were clear that RRSP withdrawals are presumptively income for child support. However, there was acknowledgement that in specific cases equalization could reach the level of unfairness necessitating a different calculation as provided for under section 17. In Fraser, the court did not find that characterizing the RRSP as income rose to the level of unfairness, noting that the father’s primary obligation was to ensure proper support was in place for his children. The fact that the father purchased a four-bedroom house with funds from the RRSP should not deprive the children “of an available source of child support.”

In Ramezani v. Najafi, the husband withdrew $10,000 from his RRSP claiming that he did so to meet his expenses as he was unemployed for several months. He argued that he did not regularly withdraw funds from his RRSP, and that this was a one-time event. Therefore it should not be included in the calculation of his income for child support. The Court was not convinced that he met his burden to establish unfairness if it was counted as income. The blanket statement that he used the funds to meet expenses, without anything more specific, does not establish any unfairness. Further, the Court went on to explain that assessing the “fairness” of income in the context of section 17 “refers to fairness as interpreted with the objectives of the CSG [Child Support Guidelines] in mind, especially “the objectives of children benefiting from the financial means of their parents, and consistent treatment.” 

A Pattern of RRSP Withdrawals can be Decisive 

In assessing whether it is unreasonable and unfair to characterize RRSP receipts as income, courts do consider the purposes of the withdrawal and the use to which the funds were put. A pattern of RRSP withdrawals will weigh heavily in favour of their treatment as income. In certain cases this will be more dependent on the spouse’s stated reasons for the withdrawal. 

In Ludmer v. Ludmer, the trial judge excluded both parties’ RRSP proceeds because they were “non-repeating encroachments on capital.” The wife had used her proceeds to finance the litigation rather than to enhance her lifestyle. The Court of Appeal found that this was a reasonable approach, and that it amounted to an income that fairly reflected the financial realities of the spouses. 

These principles were also reflected in McConnell v. McConnell, when the wife used funds from her RRSP to finance living expenses for her and her children while she was not employed and not receiving support payments. For the judge, including the amounts from her RRSP would result in an unrealistically high income. These were appropriate circumstances for excluding RRSP amounts from income, as it was a sporadic or urgent withdrawal to “bridge a gap in income caused by circumstances beyond his/her control.” The parties’ recent separation could ultimately explain the RRSP withdrawal, and it was a one-time withdrawal for a specific purpose of bridging the gap until adequate support was in place. The RRSP receipt was also inconsistent with prior RRSP transactions, and as a one-time withdrawal, adding it to income would not produce a fair result as it would distort her actual income. 

Consider Your Own RRSP Transactions 

An RRSP withdrawal is presumptively included in income for child support purposes, as the amount of child support payments is based on the ability to pay. However, legislation enables courts to look at the pattern of income earned by a spouse and set a different amount if inclusion of the RRSPs would result in unfairness for the parties. It is up to the payor spouse to justify a deviation from the standard method of calculating income. Generally, the courts will be more open to deducting RRSP income where the withdrawals are non-recurring and are not used to fund the payor’s lifestyle. 

Contact the Divorce Lawyers at Shariff & Associates in Markham-Stouffville for Advice on Child Support Obligations

The family and divorce lawyers at Shariff & Associates work with each client to ensure that they clearly understand the options and obligations under the law, particularly regarding child and spousal support, regardless of whether they are the payor or payee parent. To speak with a member of our family law team regarding your child or spousal support questions, please contact us online or call us at 905-591-4545 to schedule a confidential consultation.