Treatment of RESPs During Separation

What is an RESP?

A Registered Education Savings Plan (RESP) is a tax deferral plan that is intended to help save for a student’s post-secondary education. The contributions made to an RESP are not tax-deductible. It is only once the money is withdrawn that the student pays the taxes, but this income is likely to be subject to little or no tax as a result of the student’s basic personal exemption as well as their tuition/education tax credits.

Who is the subscriber of the RESP?

The contributor of the plan is referred to as the “subscriber”. The subscriber of the RESP can be anybody, but it is usually the parent of a future student. However, it is important to note that there can only be one subscriber per plan unless the subscribers are spouses of each other. The spouses can remain joint subscribers to an RESP even if they separate and divorce. They just would be unable to jointly open a new RESP.

What if a beneficiary of the RESP does not pursue post-secondary education?

If the beneficiary of the RESP does not pursue post-secondary education and no other beneficiary is named, the contributions are returned to the subscriber. This affects separated families as the unused contributions and the plan’s accumulated income will only be returned to the named subscriber. With this being the case, counsel may want to address this issue in any separation agreement where the separating spouses have a RESP with significant funds under the name of one subscriber.

Is it possible to make it mandatory for a former partner to contribute to an RESP?

Based on existing case law, the leading principle is that a spouse cannot force a former partner to contribute to an RESP as it is a desirable but not necessary expense. Even if the parties had previously agreed to a domestic contract and/or consent order that each individual will contribute to an RESP, individuals should not expect the courts to place significant importance on the original intention of the parties. The courts will rarely enforce provisions related to an RESP unless there is a court order or minutes of settlement, in which case, there is a higher likelihood the court will respect the parties’ original intentions and order a party to pay.

Who owns the contributions to an RESP?

Any contributions that were made during the marriage will be available for the payment of post-secondary expenses. The remaining expenses that are not covered by the RESP are proportionately the responsibility of both parents. The remaining expenses are to be divided proportionally regardless of how much each parent originally contributed to the RESP. However, any contributions to an RESP following the separation are generally credited to the parent who made the contribution.

RESP and retroactive child support.

In general, RESP contributions will not be considered when calculating retroactive child support.

Recent Case Law

Chong v. Donnelly, 2021, ONSC

In this case, the Ontario Superior Court ruled that all the contributions made to the RESP during the marriage were to be shared equally by the parties. As the RESPs are a jointly held asset, they were subject to equalization.

However, one of the parties continued to contribute to the joint RESP post-separation. The court ruled that the party who did not contribute to the RESP must reimburse the other party for half the gross contribution to the joint RESP post-separation.

McConnel v. McConnell, 2015, ONSC

In this case, the parties are joint subscribers to an RESP, but one of the parties is requesting for the removal of the other party from the RESP. The party requesting the removal was the sole contributor to the RESP, but added the other party in order to allow management of the funds in case of her incapacity to do so.

Although the court stresses the importance of exercising caution when one spouse asks to remove the other spouse as administrator of an RESP, the court ruled that the removal of one spouse is practical in this case. As it is necessary for the trustees of an RESP to make decisions together, disagreement among the joint trustees means that one must be removed as the inability to agree would make it impossible to jointly make decisions.