Tax And Divorce
When a couple is in the process of becoming separated or divorce it is unlikely that they are thinking about the tax implications of doing so. However, it is important that the tax consequences of the break-up are properly considered.
Whilst Income tax does not automatically cause an issue for separating couples, as it is an individually assessed tax, there are other taxes that need to be considered. For example, when a couple are together there is no Capital Gains Tax (CGT) payable on assets gifted or sold to your spouse or civil partner. However, if a couple separate and do not live together for an entire tax year or get divorced then CGT may be payable on assets transferred between ex-partners.
This effectively means that the optimum time for a couple to separate would technically be at the start of the tax year so that they would have up to a year to plan how to split their assets most tax efficiently. Obviously, in the real world most couples will have far more on their minds than deciding to get separated on a certain day, but these issues should be kept in mind.
It is also important to look at making a financial agreement that is agreeable to both parties. If no agreement can be reached, then going to court to make a ‘financial order’ will usually be required. The couple and their advisers should also give proper thought to what will happen to the family home, any family businesses as well as the Inheritance Tax implications of separation and / or divorce.