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Family law as it pertains to taxes in divorce situations

It is an unfortunate reality that nearly half of Canadian marriages will end in divorce at some point. British Columbia residents are probably already aware that one in two couples will seek family law support at some time over the course of their relationships. With this in mind, it is important for both spouses in a relationship to understand how a divorce will influence their finances, particularly when it comes to taxes. 

A divorce can have serious repercussions on individual taxes, as asset division is a part of any separation agreement. In some fortunate cases, a prenuptial agreement or written marriage contract has already been signed, detailing the ins and outs of how assets and debts will be divided in the case of a divorce. However, most people still do not have these documents in order before declaring their vows. 

The intricacies of tax law can be daunting. For example, in the case of a divorce where a spouse wishes to transfer his or her RRSP beneficiary to children instead of a spouse, that amount is now considered 100 percent taxable under the law. In some cases, however, it may be possible to also make the same children beneficiaries of a life insurance plan, which is considered to be tax-free. 

This is just one example of how complex family law can be for the layman. In British Columbia, there are a variety of options available to divorcing couples in terms of learning their rights and responsibilities, not to mention seeking counsel from trained professionals. This can, in turn, help to smooth the road to an amicable separation agreement, while accounting for the complicated tax issues endemic to divorce. 

Source:, "Planning for the unthinkable -- divorce and taxes", Grant Diamond, July 21, 2016

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