When you separate from your husband or wife, or civil partner, there are lots of matters to sort out. Unsurprisingly, perhaps, tax issues are often not high on people's agendas.
It is an issue, however, which should be considered and an accountant or tax specialist should be consulted at an early stage where appropriate.
Main areas to consider
If one party receives a spousal maintenance order this means that one spouse will pay to the other a monthly amount either for a specific term, or until the receiving spouse remarries or dies. Such maintenance is income tax free in the hands of the receiving spouse, and the payer does not qualify for any tax relief for paying the maintenance.
Transfers of capital assets, such as shares, investment properties, policies etc, between spouses who live together are free of capital gains tax. This exemption is extended for separating spouses until the end of the tax year in which the couple separate. If this window has passed, then consideration can be given to what tax reliefs might be available.
There is an exemption from CGT for your main residence, which covers the matrimonial home. If one spouse leaves it can still be deemed his/her main residence for the final 18 months of his/her occupation. This period can be extended or indefinite so long as certain conditions are satisfied, for example if there is a transfer of the property pursuant to a court order or the other spouse remains living at the matrimonial home.
Sometimes the matrimonial home can be held in trust with one spouse still living there, with triggers for the property to be sold upon certain events, such as the children reaching the age of 18 or finishing education. The property can also be transferred to one spouse with a deferred charge for the other spouse, again to be realised upon certain triggering events. These scenarios have different tax consequences, so advice should be taken.
When couples have investment properties and/or businesses, and we are looking at how these can be apportioned as part of the settlement, specialist advice is needed to factor in the tax ramifications.
It is important, therefore, to take advice from a tax adviser, as well as taking legal advice. As part of my practice I work as a collaborative lawyer. This is a more holistic way of working, enabling couples who have decided to separate or end their marriage to work with their lawyers and other family professionals in order to avoid the uncertain outcome of court and to achieve a settlement that best meets the specific needs of both parties and their children.