After a divorce, one thing parents need to think about is how their child’s education savings will be affected. Registered Education Savings Plans (RESP) are a great way to save for your child’s future education.
But what happens to an RESP when parents separate or divorce? In this article, we’ll look at how RESPs and savings accounts are handled in divorce and separation in Ontario.
Types of RESPs in Divorce or Separation
When parents separate or divorce, the way a Registered Education Savings Plan (RESP) is handled depends on the type of account.
Joint RESPs
A joint RESP is owned and managed by both parents. In most cases, the money is divided between them. This can be done through:
- A mutual agreement
- Mediation
- A court order
After the split, each parent can open their own RESP and transfer their share, or one parent may keep the original account. They can continue using it for the child’s education.
Note: It is important to record the RESP balance and contributions before dividing it to prevent disputes.
Individual RESPs
An individual RESP has one parent as the subscriber. While that parent legally controls the account, Ontario courts have taken different approaches on whether RESP funds are subscriber property or held in trust for the child.
To avoid disputes, the separation agreement should specify how the RESP will be managed and used for the child’s education.
How RESP Contributions are Handled
When parents divorce, deciding what happens to RESP contributions is an important step.
Joint Contributions
If both parents have added money to the RESP, the funds are usually divided in proportion to how much each parent contributed. This can be done through an agreement between the parents or decided by a court.
Individual Contributions
If only one parent has contributed to the RESP, that parent will normally keep control of the account. However, during the divorce settlement, it is still important to make sure the child’s education savings are handled fairly. Even if the contributions came from only one parent.
Government Grants and RESP in Divorce
RESPs come with government grants, like the Canada Education Savings Grant (CESG), which adds extra money to the RESP.
Here’s how those grants work in a divorce:
Canada Education Savings Grant (CESG)
The CESG is a grant from the government that matches 20% of what is contributed to the RESP, up to a maximum of $500 per year. In the case of divorce, the CESG is usually split based on how much each parent contributed to the RESP.
If only one parent contributed, that parent gets the full grant. If both parents contributed, the grant is divided according to the percentage each parent gave.
Here’s a summary of how the CESG is calculated based on income:
| Adjusted Family Net Income for 2024 | Less than $55,867 | Between $55,867 and $111,733 | More than $111,733 |
|---|---|---|---|
| The beneficiary is not eligible | 20% = $100 | 10% = $50 | Beneficiary is not eligible |
| Basic CESG on the first $2,500 of annual RESP contribution | 20% = $500 | 20% = $500 | 20% = $500 |
| Maximum yearly CESG depending on income and contributions | $600 | $550 | $500 |
| Lifetime maximum CESG for which you may qualify | $7,200 | $7,200 | $7,200 |
Provincial Grants and Other Grants
Some provinces offer their own grants for RESPs, and these may have different rules for how they are handled in a divorce. It’s important to check with your financial advisor or your RESP provider to understand how these grants work in Ontario.
Communication and Reaching an Agreement on the RESP Division
Clear communication with your ex-partner is one of the most important steps in protecting your child’s education savings during a divorce or separation.
Discussion and Agreement
Talk openly about how the RESP will be handled. Both parents should explain their intentions for the account and agree on who will manage it, how future contributions will be made, and how withdrawals will work. It is also important to decide how any government grants or bonds in the RESP will be divided. Putting these decisions in writing in the divorce or separation agreement will prevent confusion or disputes later.
Seek Professional Advice
If you are unsure about the best way to divide the RESP or want to understand all the rules, speak with a family lawyer or financial advisor. They can explain legal requirements and outline any tax requirements.
They can also help ensure the plan you agree on protects your child’s education savings. Professional guidance can also help you create a plan for ongoing contributions, so the RESP continues to grow even after the separation
Protecting Your Child’s Education Savings
During a divorce or separation, it’s important to take steps to make sure your child’s RESP is safe and continues to grow.
Keep Making Contributions
Even during this challenging time, try to keep adding money to the RESP if possible. Consistent contributions, even small ones, help the savings grow through investment returns and allow you to maximize government grants like the Canada Education Savings Grant (CESG). If both parents agree to keep contributing, decide how much each will add and how often. Write this plan into your separation agreement so there’s no uncertainty.
Create a Legal Agreement
Include the RESP division in your separation or divorce agreement. This document should clearly state:
- How the existing funds will be divided
- Who will manage the RESP going forward
- How future contributions will be made
- How withdrawals will be handled when the child starts post-secondary education
- What will happen if one parent stops contributing
Having these details in writing protects both parents and ensures the savings are used for the child’s benefit. It also helps avoid misunderstandings and potential legal disputes later.
Conclusion
Whether you have a joint RESP or individual accounts, it’s important to reach an agreement and make sure the education savings are included in the overall division of assets.
By continuing to make contributions, creating a legal agreement, and seeking professional advice, you can help protect your child’s future and make sure they have the resources they need for their education.
FAQ: Answers to Common Questions on RESP and Divorce
Control of the RESP after a divorce will depend on the terms agreed upon by the spouses or as specified in the separation agreement clause. In many cases, one party retains subscriber control, but a joint subscriber arrangement can also be made.
It is possible to divide a joint RESP, but both parties must agree on the terms, and the government grants RESP divorce may need to be considered. Proper documentation and a separation agreement are vital.
Yes, government grants like the Canada Education Savings Grant (CESG) will continue to match contributions made to the RESP after divorce, as long as the account remains active and contributions are made.
An RESP is not typically considered a marital asset in the same way as other property; instead, it is a trust set up for the benefit of children. However, how it is divided should be addressed in a separation agreement.
The Labatte v. Labatte case clarifies that control of the RESP should be agreed upon and documented in a separation agreement to prevent confusion or disputes about who manages the account after separation.
Post-separation RESP contributions are credited to the account, and both parties should agree on how to handle these contributions, especially if they are outlined in the separation agreement clause.
Yes, including the RESP division in the separation agreement is crucial to ensure both parties understand how the RESP will be managed after divorce and prevent future disagreements.
While savings accounts are typically subject to asset equalization in divorce, RESPs are treated differently because they are intended for a child’s education.
Clear RESP statements and records of contributions and government grants are essential to clarify how the RESP has been handled during and after separation.
Yes, RESP funds may be used for ‘off the top’ education costs, depending on the terms of the separation agreement and the child’s educational expenses.
This agreement will protect both parents and ensure that your child’s education savings are properly taken care of. It will also make sure that both parents are on the same page about how the RESP will be managed moving forward.
Disclaimer: The information provided in this blog is for general informational purposes only. It is not legal advice and should not be relied on as such.
