In Ontario, joint Registered Education Savings Plan (RESP) funds must typically be completely exhausted before parents are required to pay out-of-pocket for post-secondary tuition under Section 7 extraordinary expenses. A family lawyer can ensure these funds are applied fairly.
Planning for a child’s future usually involves opening a Registered Education Savings Plan (RESP). But when parents separate, deciding how to use those accumulated funds often leads to bitter disputes.
Under the Ontario Child Support Guidelines, post-secondary education is considered a “Section 7 extraordinary expense.” This means the cost of university or college is shared between the parents proportionally based on their incomes. However, the law generally requires that you use the money specifically saved for education before opening your own wallets. 📚
Whether you are dealing with a divorce in Mississauga, Brampton, or downtown Toronto, handling RESP funds properly requires transparency. Family law firms frequently help parents structure these education payments to ensure the child gets the maximum benefit without causing unfair financial strain on one parent.
Step-by-Step Process in Ontario
Calculating Section 7 expenses involves a strict legal formula. You cannot simply guess who owes what. You must follow the exact sequence expected by the Superior Court of Justice.
Step 1: Audit and Disclose the RESP Balances
The parent who holds the RESP account (the subscriber) must provide full financial disclosure. You will need to present recent statements showing the total value of the RESP, including the parents’ original contributions and the government’s Canada Education Savings Grants (CESG). 📊
Transparency is mandatory in family law. Hiding the balance of an RESP during a divorce can lead to severe legal penalties and cost awards against you.
Step 2: Determine Total Educational Expenses
Before any money is withdrawn, you must figure out the actual cost of the child’s academic year. Gather the invoices for tuition, mandatory student fees, textbooks, on-campus residence, and a university meal plan.
You must calculate this budget carefully. Generally, extravagant expenses like a brand-new car to commute to school or expensive spring break trips do not qualify as Section 7 expenses.
Step 3: Apply the RESP Funds to the Budget
Once the total educational cost for the year is established, the RESP funds are applied directly against that amount. 💵
For example, if the first year of university costs $20,000 CAD, and there is $10,000 CAD in the joint RESP, you withdraw and apply the RESP money first. This leaves a remaining educational shortfall of $10,000 CAD.
Step 4: Deduct the Student’s Own Contribution
Ontario courts expect adult children to contribute to their own education. Your lawyer will deduct any scholarships, bursaries, or OSAP grants the child receives.
The court will also expect the child to contribute a reasonable amount from their summer employment. If the child earned $3,000 CAD over the summer, that amount is deducted from the remaining $10,000 shortfall, leaving a final balance of $7,000 CAD.
Step 5: Apportion the Remaining Balance
The final shortfall is what the parents must pay out-of-pocket under Section 7. This amount is not split 50/50. It is divided proportionally based on each parent’s current gross income (found on Line 15000 of their CRA Notice of Assessment). ઈ️
If Parent A makes $100,000 and Parent B makes $50,000, Parent A pays roughly 66% of the remaining expense, and Parent B pays roughly 33%. Your lawyer will draft this exact formula into your separation agreement.
How Much Does it Cost in Ontario?
Working out Section 7 expenses and managing an RESP dispute generally involves legal and accounting fees. 💰
- Lawyer Fees (Negotiation): $2,000 to $5,000 CAD (To draft the education expense clauses in a separation agreement).
- Financial Advisor Fees: $200 to $500 CAD (To structure tax-efficient Educational Assistance Payments from the RESP).
- Section 7 Litigation: $10,000+ CAD (If parents end up in family court fighting over what constitutes a “reasonable” university expense).
| Calculation Step | Action Taken | Example Value |
|---|---|---|
| 1. Total University Cost | Tuition, books, and residence | $20,000 CAD |
| 2. Apply Joint RESP | Drawn down from savings | – $10,000 CAD |
| 3. Student Contribution | Summer jobs and scholarships | – $3,000 CAD |
| 4. Final Section 7 Amount | Parents split this proportionally | $7,000 CAD |
How Long Does the Process Take?
Do not wait until September to sort out tuition payments. ⏱️
You should begin the financial disclosure and budgeting process in the spring (April or May) of the child’s grade 12 year. Negotiating and drafting a formal Section 7 addendum to your separation agreement typically takes 1 to 3 months. If you need court intervention to force a parent to pay their share, the process can take 6 to 12 months, meaning the student may need to rely on student loans temporarily.
Frequently Asked Questions (FAQ)
What if only one parent contributed to the RESP?
If the RESP was built solely by one parent after the separation with their own post-separation income, the court may treat it differently. It might be credited specifically against that parent’s proportional share, rather than deducted from the top. You should consult a lawyer for this complex scenario.
Who pays the taxes on the RESP withdrawal?
When the funds are withdrawn as an Educational Assistance Payment (EAP), the growth and government grants are taxed in the hands of the student. Because students usually have very low income, they typically pay little to no tax on it.
Can I cash out the RESP and keep the money?
If the RESP is a joint asset from the marriage, cashing it out for personal use is a severe breach of your financial duties. You will likely be ordered to repay the funds and face legal sanctions.
What happens if my child decides not to go to college?
If the child permanently decides against post-secondary education, the RESP can be collapsed. The government grants are returned to the CRA, and the remaining contributions are usually split between the parents as per the property equalization agreement.
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