RESP & Divorce – Who gets it?
A Registered Education Savings Plan (RESP) allows you to save money for your child’s post secondary education. With it, you can take advantage of federal and provincial grants or incentives, which become part of the RESP. So, in the case of a divorce, who is entitled to it?
RESPs can be a smart way to save for your child’s education—for university, college, or certain trade schools. The money grows, tax deferred, and can be augmented by up to $7,200 of grants and other incentives, per child.
But it ultimately remains the property of the plan holder. Your child is the beneficiary. If you are both listed as joint subscribers, then you both must negotiate how the plan will be handled in your divorce negotiations. If you opened the account by yourself and are the only plan holder, then you get to decide the shots.
In either case, if you are considering closing the plan, it’s important to consider the financial implications. You don’t need to wait for a child to enter a post-secondary institution; money can be withdrawn at any time. But grant monies will have to be returned; you face a withdrawal penalty; and the deferred tax will be due. There may also be certain conditions as part of your plan which govern when and how you can withdraw money.
If it is a jointly subscribed plan, all these points apply. But in addition, you both must agree to withdraw the money.
Or, you can remain as joint subscribers and continue to contribute to your child’s education. Under the Income Tax Act, RESPs are not required to be divided between divorcing spouses.
Or, you can split the plan money equally between the two of you, but the beneficiary must remain the same. There are no penalties for doing this, and you can then hold your own plan for your child’s benefit.
Take into consideration that, as an asset, RESPs are not protected from creditors. This is important for a jointly held plan. If your ex declares bankruptcy at some point in the future, the plan’s assets could go to benefit the creditors instead of your child.
Finally, RESPs may not be the only investment you can use to save for your child’s post secondary education, especially once the available grant money has been maximized. There are other investments which offer tax benefits.
If you would like to know more about your options, give us a call.