Divorce or separation can be a challenging time for families, and it's important to consider the impact on your child's future, including their education savings. Registered education savings plans (RESPs) are valuable tools that parents use to save for their child's post-secondary education. In this article, we’ll discuss how RESPs can be impacted in a divorce or separation and ways that may help protect and manage these funds effectively.
Types of RESPs
In the event of a divorce or separation, it's crucial to understand the type of RESP you have and how it may be affected:
Joint RESPs
If you and your former partner have a joint RESP, the funds will typically be divided between you both. This division can be agreed upon through negotiation, mediation, or determined by a court order. The funds can then be transferred to individual or new joint RESPs or 1 parent may be granted the RESP to use for the child's education expenses.
Individual RESPs
If each parent has an individual RESP for the child, the funds in these accounts will generally remain with the respective parent who owns the account. However, it's essential to consider the overall division of assets and ensure the child's education savings are adequately accounted for during this process.
Division of contributions
When it comes to contributions made to the RESP during a divorce or separation, consider the following:
Joint contributions
If both parents have made contributions to the RESP, it's important to determine how the funds will be divided. This division can be based on proportional shares, negotiated between both parties and determined by a court order.
Individual contributions
If only 1 parent has contributed to the RESP, they will typically retain ownership of the funds in their individual RESP account. However, it's essential to consider the overall division of assets and ensure the child's education savings are accounted for in the settlement process.
Government grants
RESPs are eligible for government grants, and it's crucial to understand how these grants may be impacted by divorce or separation:
Canada Education Savings Grant (CESG)
The CESG is a matching grant provided by the government, which matches 20% of annual RESP contributions, up to a maximum grant of $500 per year. In the case of divorce or separation, the CESG is generally allocated based on the contributions made by each parent. If only 1 parent has contributed to the RESP, they will receive the corresponding CESG. If both parents have contributed, the CESG may be divided based on the proportion of each parent's contributions.
Provincial grants and additional grants
Different provinces offer their own grants, and these may have specific rules regarding their impact in divorce or separation situations. It's essential to consult with an advisor or RESP provider to understand the implications and ensure you maximize the available grants for your child's education.
Communication and agreement
Open communication and reaching an agreement with your former partner are essential for protecting your child's education savings:
Discussion and agreement
Engage in open and honest discussions with your former partner regarding the division of assets, including the RESP. Clearly communicate your intentions and expectations for the funds and work towards a mutually agreeable solution.
Seek professional advice
Consider seeking guidance from an advisor or family lawyer experienced in divorce and separation matters. They can provide valuable insights, help navigate the legal and financial complexities, and help ensure your child's education savings are protected.
Protecting your child's education savings
To provide certainty and avoid issues regarding your child's education savings during a divorce or separation, following these practical steps may help:
Maintain regular contributions
Evaluate your financial circumstances and determine if you can continue making regular contributions to the RESP. Consistent savings, even during challenging times, will help grow your child's education fund.
Create a legal agreement
Consider establishing a legal agreement, such as a separation agreement, that clearly outlines the division of assets, including the RESP. This agreement will provide clarity, protect the interests of both parents and help ensure the child's education savings are properly accounted for.
What happens to a RESP if your child doesn’t go to school?
If your child decides not to pursue post-secondary education, the funds in the RESP can still be used for other purposes. Check out this article about what to do with an RESP if your child doesn’t go to college or university to learn more.
In the event of a divorce or separation, an RESP may be impacted in terms of contributions, government grants, and account ownership. It is important for parents to communicate, reach agreements, and consider the best interests of their child's education savings. Seeking professional advice can help navigate the complexities and ensure the RESP is managed effectively.