Divorce and Taxes: What Happens Tax-Wise When You Go Your Separate Ways?

Why does the CRA need to know that my spouse and I are calling it quits?

Ending your marriage can change how much taxes you owe or the benefit amounts you can claim based on your updated family income, the number of children in your care, and the province or territory you live in.

Notifying the CRA about a change in your marital status also ensures you’re receiving the proper payment amounts for your goods and services tax/harmonized sales tax (GST/HST) and Canada Pension Plan (CPP) credits.

How soon should I tell the CRA about my divorce?

The CRA only considers you legally separated if you’ve been living apart for at least 90 days. So wait a full 3 months—90 consecutive days—before letting the CRA know.

If you have divorced, notify the CRA by the end of the following month after your marital status changed. For example, if you divorced in March, tell the CRA by the end of April. You can let the CRA know on My Account, by calling 1-800-387-1193, or by filling out the Marital Status Change form and sending by mail.

Then, the CRA can start processing changes to your benefits and credit payment amounts. The adjustments should start the month after your marital status has changed.

If you receive your benefits via direct deposit, remember to inform the CRA if your banking information has changed so your cheques aren’t deposited into the wrong account. (Quebec residents should also advise Revenu Québec.)

What if I have children?

If you have children, filing your tax return will look different after your divorce. For example, if you have children under 18, the CRA will recalculate your Canada child benefit (CCB) and once you are separated/divorced, you may be able to claim dependants.

There are certain legal fees you can also claim on your tax return depending on your situation. Read more about filing your taxes after a divorce with children.

Remember that childcare maximums still apply

Deductions such as childcare costs or daycare fees have their values capped depending on the age of the child. If you and your former spouse both pay childcare costs, it’s important to note that the dollar limit on childcare still applies.

For example, if you and your ex-spouse pay fees for after-school care for your 10-year-old, you both may be eligible to claim the fees at tax time—but only up to the maximum per child. The maximum credit is generally $5,000 for a 10-year-old child. If you and your ex-partner each paid $3,000 last year, your combined total for your child’s care would be $6,000—that’s $1,000 over the max. Only $5,000 can be claimed in total. So it’s up to you and your ex to work out who’s claiming what.

The maximum limits can be found on Form T778, Child Care Expenses Deduction.

Are support payments tax deductible?

Based on a court order, support payments are amounts paid by one spouse to the other when they go their separate ways. While child support is generally considered non-taxable, ongoing payments for spousal support (also referred to as “alimony”), are tax-deductible for the person who pays them and taxable to the person who receives them.

What happens to our shared assets after a divorce?

Assessing your finances and dividing your assets can be difficult, no matter how friendly the split. Even the math isn’t clear cut. When negotiating assets, it pays to consider the tax implications.  

Here are some common assets to be mindful of and possible ways to make the most out of your situation:

Registered Retirement Savings Plan (RRSP)

Thinking of cashing out your RRSP to come up with the funds to put toward the divorce settlement? Don’t do it! You’ll trigger a withholding tax of up to 30% for the privilege of cashing out before retirement. 

Instead, take advantage of the tax exception that lets one spouse transfer their RRSP to the other in the event of a divorce. The same applies to registered retirement income funds (RRIFs), tax-free savings accounts (TFSAs), and spousal RRSPs.

Capital assets

Capital assets, such as non-registered investments, a second home, or a rental property, can be transferred on a tax-deferred basis between spouses. That means when you give away ownership of a capital asset to your ex, there are no tax implications until the asset is sold (which triggers a capital gains tax for the person who owns it). 

Talk to your former spouse about meeting with a professional before selling off any of your life savings. This way you can optimize the situation for the both of you and avoid unnecessarily giving away your money due to hasty decisions. You built a life together, it is a responsibility to unravel it at a pace you can both feel good about.  

The family home

Figuring out how to divide a piece of property as sentimental (and valuable) as your family home can be one of the most fraught line items of all. Options range from having one person buy the other out to selling it outright. Less common choices include keeping the house under both names and turning it into a rental property or even retrofitting the home into a duplex with separate living quarters. 

Each possibility comes with its own set of financial and lifestyle implications that are worth talking through with a professional. Quebec residents should consult the Revenu Québec website for province-specific tax implications on the division of assets.

Looking toward the future

Divorce is never easy, and you don’t have to go it alone. Each province has resources and organizations to provide services and information designed to help you and your family navigate this difficult chapter. 

With knowledgeable experts who understand the tax implications of divorce, TurboTax is here to work through your questions—and even do your taxes for you from start to finish—so you can focus on better days ahead.