Investment planning for couples

Canada Life Investment Management Ltd. - Jun 22, 2023
Couples generally plan and work together to improve their financial future, but what happens to their accounts if they divorce?
A couple talking with an investment professional

Couples generally plan and work together to improve their future; this may include growing their assets, managing debt and property. As part of this process, spouses may employ different planning methods and use various tax-effective strategies to help accomplish their goals. Using the example of a typical couple, Tom and Louise, here are some general tactics you might consider when optimizing your tax planning.

Note: The following information is general in nature and applicable to all provinces except Quebec. Please see Insights into the Quebec landscape specifics related to Quebec.

This article is based on a previously published article by John Yanchus, CPA, CA, TEP, Director, Tax and Estate Planning, Canada Life. 

Meet Tom and Louise 

After 15 years of marriage, Tom and Louise have developed a detailed investment plan. Their plan includes: 

Spousal registered retirement savings plan (RRSPs) 

Tom’s annual income is higher than Louise’s, so Tom contributes to both his and Louise’s RRSPs, so they can split their retirement income in the future. This will let Louise draw from her RRSP once they’re both retired. They’ve designated each other as the beneficiary on their RRSPs to make sure they take advantage of the tax-free spousal rollover at death. They’ve named their children as contingent beneficiaries.

Note: There are contribution limits for deposits made to spousal RRSPs. Talk to a tax professional for more details. 

Tax-free savings accounts (TFSAs) 

Tom and Louise are also fully funding their TFSAs. They plan to supplement their retirement income by making tax-free withdrawals from their TFSAs, as needed. This will help them control their taxable income level in retirement and will give them an emergency source of funds that won’t be taxed when they access it.

Tom is able to gift money to Louise for contribution to her TFSA without attribution consequences. The contribution limit for a TFSA is $88,000 (as of 2023). Tom and Louise have designated each other as a successor holder on their TFSAs. This will allow them to keep their TFSA intact when it rolls over to the surviving spouse at the other spouse’s death. They’ve also named their children as beneficiaries. Note: If your spouse is named as a beneficiary rather than the successor holder, you’ll need to meet certain conditions in order to have the TFSA transferred to them tax-free. 

Segregated fund policy

Tom and Louise have their non-registered savings invested into a segregated fund policy. They like the death and maturity guarantees with this investment and the potential creditor protection it may provide.1  They jointly own their policy. Both of them are annuitants (and they’ve named their children as beneficiaries. Because they have joint ownership, the ownership of the policy will pass tax free to the surviving spouse at the death of the other. This will eliminate any potential for a tax obligation coming up when the first spouse dies. 

Other assets 

Tom and Louise have other assets, like their home, a term life insurance policy to cover their mortgage and Tom’s pension plan through his employer. Any property you acquire during a marriage is considered matrimonial property.

Here’s a summary of the couple’s assets. 

Asset   Amount ($)
RRSP Tom  250,000
  Louise 150,000
TFSA Tom 125,000
  Louise 125,000
Segregated fund policy   200,000
House (net of mortgage)   300,000
Pension plan   200,000


No discussion about marriage and finances would be complete without discussing divorce. While the divorce rate has gone down over the past few years, there are still approximately 50,000 divorces each year in Canada2. Divorce impacts a couple’s financial security plans.

When you divorce, you and your spouse have to consider how you’ll divide your assets. Usually, this involves a separation agreement specifying how all assets are to be divided. Generally, any tax planning you have in place before the divorce will be undone during this process. It’ll likely be an emotional negotiation, but it’s important to try to put your emotions aside so you and your spouse can protect yourselves. Getting help from a mediator or legal counsel will help keep emotions out of your decisions.

When you divorce, these are some immediate steps you should take for certain types of assets: 

  • Change PINs and access codes for bank cards, credit cards and investments 
  • Notify financial institutions to freeze any joint accounts, lines of credit or credit cards 
  • Open your own bank account and apply for your own credit card if required 
  • Review and potentially change any beneficiary designations on your life insurance policies, segregated fund policies, pension plans and other registered accounts 
    • Beneficiary designations are revoked upon divorce in some provinces. 
    • If you had creditor protection before and still want it, be sure to name another beneficiary from the protected class 
  • Update your will and power of attorney information 

Tom and Louise revisited 

Tom and Louise have decided to divorce. They’ve made an agreement to divide their matrimonial property, so they each get 50%. With asset division, there are several concerns to address from planning and tax perspectives.

Here’s a summary of how the couple have split their assets: 

Asset   Amount ($) Tom's share ($) Louise's Share ($)
RRSP Tom 250,000 250,000 0
  Louise 150,000 0 150,000
TFSA Tom 125,000 125,000 0
  Louise 125,000 0 125,000
Segregated fund policy   200,000 100,000 100,000
House (net of mortgage)   300,000 0 300,000
Pension plan   200,000 200,000 0
Total   1,350,000 650,000 650,000

Spousal RRSPs 

Tom and Louise each keep their RRSP intact at its current value. This is the easiest way to go. Even though when you divorce, you could split your RRSP with your former spouse tax free, you’d have to complete many forms to ensure the transfer is made correctly. Errors could happen and cause you, your former spouse or both of you to have taxable income. You should each name a new beneficiary for your RRSP. 


Tom and Louise each keep their TFSA intact at its current value. After a divorce, if you have a TFSA, you should remove the successor holder designation and review your beneficiary designation. There are no tax implications for this split.

If you must split a TFSA, you can make a transfer to your former spouse’s or common-law partner’s TFSA without affect their contribution room (subject to certain rules). This transfer isn’t considered a withdrawal. If you don’t make a direct transfer, you could cause some difficulties – when you redeem an amount of money from your TFSA, you get contribution room for the same amount, but it doesn’t take effect until Jan. 1 of the next year. 

Segregated fund policy 

Tom and Louise chose to split their segregated fund policy so that each get 50%. How you split your policy will be based on your separation agreement or a court order. However, this would be processed as a non-intact transfer and you’ll be charged deferred sales charges, if applicable. Each of you become an annuitant of your own policy. As well, you should ensure your beneficiary information is correct. You’ll need to name a beneficiary for each policy.  Except in Quebec, when you name a spouse, child, a grandchild or a parent as an irrevocable beneficiary, you can maintain potential for creditor protection and multiple designations, if your first beneficiary dies before you. 

Other assets

In the example of Tom and Louise, the house (net of the mortgage) is transferred to Louise, giving her a place to raise their children with the least disruption possible. The term life insurance policy Tom and Louise have on their mortgage has minimal value at this time, but they should keep it in place to protect the mortgage. Transferring the house deed and mortgage documentation to Louise may take some time and there may be fees.

An actuary determined Tom’s pension is worth $200,000. It remains with Tom as part of 50% of their shared assets. 


If you decide to remarry after a divorce, you should consider the impact on your family. You may be surprised to learn a new spouse may have rights that supersede your first family’s rights when it’s time to settle your estate. Your legal counsel and your financial advisor can help you protect your beneficiary designations, gift money to your first family or set up a trust.

You might also want to consider creating a: 

  • Cohabitation agreement before you move in with a partner 
  • Prenuptial agreement before you marry 
  • Marriage or civil union agreement after your second marriage 

These legal agreements can specify ownership and inheritance of property and help minimize future conflicts.

A formal agreement establishes partner’s rights and obligations. Keep these in mind if you plan to leave a portion of your assets to your first family. This is especially important for: 

  • Your matrimonial home 
    • When your new spouse moves in, your house may be included in any future divorce settlement 
  • Investment assets and business assets 
    • If you don’t take steps to keep these assets separate from your spouse’s assets, they may be seen as jointly held assets and may be considered as part of any future settlement. 

Other considerations 

Status of a common law spouse 

As a common law spouse, you may have rights that are quite different from a married spouse’s rights. 

Estate plans 

In some provinces, a new marriage revokes an existing will. When you remarry, it’s critical that you make a new will. If you die intestate (or without a will), your assets will be divided by default and beneficiaries you’d have liked to leave certain assets to might not be included. 

Spousal trust 

A spousal trust can be a useful estate planning tool. When you die, a spousal trust would ensure your surviving spouse is looked after while they’re alive and has access to the assets in the trust for their lifetime. After the surviving spouse dies, any money or assets remaining in the trust can be given to a designated beneficiary. However, if you don’t have a spousal trust, your surviving spouse is free to leave assets they inherited from you to anyone they choose. 

Keep your financial and estate plans up to date 

Over the years, your needs, along with your first family’s and subsequent family’s needs, will change.

To meet these changes, consider: 

  • Updating your estate plans as any life events occur, including any trust arrangements as your beneficiaries age. 
  • Amending cohabitation, marriage or separation agreements as required. 
  • Reviewing and updating all beneficiary designations on your life insurance policies, segregated fund policies, pension plans and other registered products.

Segregated fund policies 

Having a segregated fund policy-based strategy can be especially helpful. You’re able to directly name beneficiaries for each policy. As well, these policies can help protect an intended recipient from future court challenges. These investments can also: 

  • Protect your privacy (except in Saskatchewan) 
  • Provide a timely payout to named beneficiaries 
  • Bypass your estate 

In provinces where provincial estate administration taxes (probate) are a percentage of estate assets, you can save significant dollars.

Segregated fund policies also offer a settlement option which allows you to transfer assets to your beneficiaries as a life annuity, a term certain annuity or a lump sum. An annuity would provide ongoing cash flow instead of a lump sum. You can handle settlement options uniquely for each beneficiary.

Remember to discuss your plans to protect your loved ones with them to help prevent surprises and costly court battles after your death. You should make sure your estate trustee and legal advisor know where your will and power of attorney documentation in case anything happens.

With advanced planning and professional guidance from your legal counsel and financial advisor, you’ll be able to create a plan that takes care of all your loved ones. 

Overview of Quebec rules 

The Civil Code of Quebec treats certain aspects of marriage, civil union, divorce and inheritance differently than the common law that governs the rest of Canada. Here’s an overview of some of the applicable rules: 

  • You can prepare a will yourself (certain conditions must be met to be valid) or it can be prepared by either a lawyer or a notary (both are referred to in this article as a “legal advisor”). 
  • Common law spouses have no rights under the Civil Code of Quebec and family patrimony rules don’t apply to them. Your assets will be divided if you made a written agreement in that respect  (called a cohabitation agreement or a de facto union agreement) otherwise it will be split based on who owns the assets (evidence of purchase should be kept) or as agreed at the time of separation. Common law spouses aren’t considered legal successors, so it’s important you have a will to protect each spouse.  
  • The Quebec Tax Act and the Federal Income Act recognize common law spouses. This means that after a certain period of cohabitation you may use some tax benefits (for example, the tax-free rollover between spouses) and you must declare your revenue as a couple. The Supplemental Pension Plans Act and other pension legislation also recognizes common law spouses. This means, any locked-in plan recognizes a common law spouse when the definition is met and that a common law spouse could take precedence over any beneficiary. However, the asset splitting is only available if both common law spouses agree to such split in case of marital breakdown.  
  • You can designate a beneficiary on products issued by life insurance companies such as a life insurance policy, a life or term annuity and a segregated funds policy (registered or non-registered) as well as certain trust products and pension plans. It is generally not allowed for other types of investment products. A divorce, a marriage nullity, a dissolution of civil union or a separation from bed and board will trigger a division of assets.  
  • If you name your married spouse or spouse in a civil union as a beneficiary within a life insurance policy, an annuity or a segregated fund policy, the default designation is irrevocable unless you indicate otherwise on the form. This means you can’t change the designation without your spouse’s consent, except after divorce. As with a married spouse or a civil union spouse, when you name your common law spouse as an irrevocable beneficiary, the designation can never be changed without your spouse’s consent and you’re prohibited from making certain transactions on your policy without their consent.  
  • Upon a divorce, a nullity of marriage or dissolution of a civil union (referred to as “marital breakdown”), your former spouse is automatically removed as the revocable or irrevocable beneficiary of your life insurance policy or pension plan. Your former spouse is also no longer a subrogated policyowner or successor holder. 
  • A marital breakdown also removes your former spouse as legatee or liquidator of your estate. 
  • After a marital breakdown, it’s recommended that you name a new beneficiary and a new successor holder. 
  • Not all assets are part of the family patrimony. For example, insurance policies and non-registered annuity contracts aren’t part of a family patrimony, but they can form part of a matrimonial regime. As well, although an asset may be included as part of the family patrimony, it may not be split. The family patrimony will determine a value to be split and the spouses or the court will decide which assets to split. 
  • Non-registered segregated fund policies aren’t part of a family patrimony. This means they’re not automatically subject to a division. If you were married under a partnership of acquests, you or your former spouse could request an amount as compensation.  
  • Registered Pension plans are part of the family patrimony and they can be divided by the value accrued during marriage; half of the value of a participant’s account accrued during marriage could be transferred into his/her ex-spouse’s locked-in account. When legislation governing the registered pension plan provides for a survivor pension to the spouse, the plan is not included in the family patrimony, if the family patrimony division is requested as a result of the death of one of the spouses.  
  • A trust can be appointed as beneficiary, provided it has been established by a contract or a will. No payment can be made to a person designated as trustee based only on a designation made on a life insurance form. The trust needs to exist at the time the benefit becomes payable. 
  • A policyowner is not entitled to choose a life annuity settlement option for the beneficiary. This can only be elected by the beneficiary once the sums become payable. 

Contact me today to learn more.

*Note: contribution limits to deposits made to spousal RRSPs exist. Consult a tax professional for more details. 

1 Creditor protection depends on court decisions and applicable legislation, which can be subject to change and can vary from each province; it can never be guaranteed. Your client should talk to their lawyer to find out more about the potential for creditor protection for their specific situation. 

 2 Statistics Canada. Table 39-10-0051-01  Number of divorces and divorce indicators