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Divorce and Bankruptcy

There is a wise old saying – “Hope for the best, but plan for the worst.”  In other words, sometimes in life the unexpected can happen, including such things as divorce and bankruptcy.  The following section outlines the potential outcomes of these unexpected events, and how your Locked-In Retirement Savings Plan (LRSP) can be impacted by them.

Divorce / partnership breakdown

If your marriage or common-law partnership breaks down, your LRSP is subject to any applicable provincial property laws. The Pension Benefits and Standards Act (PBSA) allows the division of the LRSP assets by court order or written agreement, each person becomes entitled to their portion of the LRSP upon presentation of the court order or written agreement to the financial institution administering the account.

Any amount transferred to a former spouse or common-law partner continues to be subject to the federal locking-in rules.

Bankruptcy

In the case of bankruptcy, the assets held in locked-in accounts are safe from the claims of creditors. However, if you choose to convert your locked-in savings account (LRSP, RLSP) into a Life Income Fund, Restricted Life Income Fund (RLIF), or purchase an immediate Life Annuity, the monthly or annual payments could be seized by a creditor. Furthermore, unlocked amounts (even those held in a RRSP or RRIF), may be subject to the claims of creditors as they lose the protection offered under the Pension Benefits Standards Act, 1985.

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