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Tax on divorce and separation

The famous dictum that “the only two certainties in life are death and taxes” is certainly true given how often tax issues appear in almost all aspects of family law where finances are an issue.

Areas where tax may need to be considered carefully include:

  • Prenuptial and postnuptial agreements
  • Divorce and/or separation from your partner
  • Financial provision for you, your partner and/ or your child(ren) following divorce or separation

Specific examples in practice include:

  • Assessing the inherent tax liabilities associated with the vesting of an asset (e.g. shares or share options in an employer company) or upon the sale of any 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 transfer 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. In this case, the tax effect – and therefore the financial effect – for each party may vary greatly depending on whether they are married, in a partnership, 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.
  • Capital Gains Tax (CGT) liabilities can impact heavily on your financial settlements – allowances on separation have now been reduced to just 18 months post separation

In many of the above situations, the position will be more complicated if one party is a foreign national or non-UK domiciled. In the case of unmarried couples, the tax implications on asset transfers, particularly with regards CGT and Inheritance Tax, are also different to those affecting married couples.

Rayden Solicitors provide quality advice at an affordable rate enabling a broad range of clients to manage the financial negotiations effectively.

It is essential that you have expert advice from a solicitor that understands these issues. Rayden Solicitors will assist you in getting the correct support.

Rayden Solicitors is committed to equality and diversity and in doing so supports and advises all members of our community.

The Tax and Financial Implications of a Divorce FAQs

How do I protect myself financially in a divorce?

Divorces are financially complicated and many couples choose to opt for the protection of a prenuptial or postnuptial agreement which clearly sets out their entitlements in the event of a divorce. However, an experienced divorce solicitor such as Rayden Solicitors can offer the detailed, careful advice that will guide you through financial negotiations and ensure you are protected.

Do I have to pay tax on my divorce settlement?

You do not have to pay tax on a divorce settlement. Transfer of assets between two parties in the event of a divorce is protected from tax – however, once a divorce settlement is agreed you will have until the end of the financial year to complete these transfers without being taxed.

Is there a Capital Gains Tax on transferring property on divorce?

Ordinarily you do not have to pay Capital Gains Tax on property which is transferred as part of divorce proceedings if you previously lived in the property together. However, you will have only until the end of the tax year to complete the transfer, and after that Capital Gains Tax will be payable.

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