Tax Implications on Divorce and Separation

The famous dictum that "the only two certainties in life are death and taxes" is certainly true when considering that tax issues rear their head in almost all aspects of family law where finances are at issue.

Areas where tax may need to be considered carefully include:

Specific examples in practice include:

  • Considering an individual's assets and liabilities and assessing the inherent tax liabilities associated with the vesting of an asset in the individual's hands (eg shares or share options in an employer company) or with the sale of any of an individual's assets;
  • If one spouse or partner is to remain in the family home but the other is to continue to have a financial interest in the property, how best to structure that arrangement from a tax perspective;
  • Dealing with the transer from one spouse or partner to the other of any interest in a second home, in the family business or company or indeed any other asset of the relationship: here, the tax effect- and therefore the fiancial effect- for each party may vary greatly depending on whether they are married (or in a civil partnership) or divorced or separated at the time of the transfer;
  • Pension splitting or sharing or accessing cash from pension funds to facilitate immediate financial provision;
  • Tax credits and how a change in a family's living arrangements may or will change entitlement.

In many of the above situations, the position will be more complicated if one party is a foregn national or non-UK domiciled. In the case of unmarried couples or a same sex couple not in a civil partnerhip, the tax rules on asset transfers particularly with regards Capital Gains and Inheritance Tax are also different to those affecting married couples.

It is also important to remember that Estate Planning or the making of arrangements either during a lifetime or through a Will to benefit family or others, or to protect assets for family or others, needs to be kept at the forefront of your mind. To give one example, in the event of separation, it may be desirable to consider an immediate review of your Will.

In assisting clients in all Family Law matters, Rayden Solicitors are able to provide dedicated advice on Tax and Estate Planning and ensure that relevant issues are addressed and not overlooked.