Divorce and separation
PUBLISHED: 14:06 14 January 2010 | UPDATED: 14:57 20 February 2013
Kelly Tevrett from Judkins Solicitors in Hertford looks at the tax implications for couples dividing their assets
WHEN a couple enters a divorce or separation they could enter into months of negotiations concerning their marriage, children and property. They may finally reach agreement regarding the appropriate division of any assets or property that they have, and believe that this will be an end to the matter, at least in so far as their finances are concerned.
However, little or no thought is given at that time to the tax consequences of their financial settlement, often leading to an unpleasant surprise when, many months later, a large tax bill arrives in the post from H M Revenue and Customs.
One of the most common potential tax consequences arising out of a matrimonial settlement is Capital Gains Tax (CGT), which can be payable if relevant property or assets are disposed of or transferred as part of the overall agreement.
Often, the main asset for most couples is the family home. If it qualifies as the Principal Private Residence of both parties for the entire period of ownership then, subject to exceptions it may be exempt from CGT liability, or may be subject to a sliding scale of liability. However, in certain scenarios, for example if one of the parties has not lived at the property for some time or has purchased another property in the meantime, there may well be a potential tax liability.
Many couples may also have invested together in second properties or holiday homes. Again, if these are sold or transferred as part of the settlement, there may also be a potential tax liability which will need to be quantified, and the potential liability borne in mind in ongoing settlement negotiations with your spouse.
Similarly, if there are other assets involved which form part of the financial agreement reached with your spouse, such as a family business or an interest in the same, this may also involve a potential tax liability, which could be considerable.
It is therefore essential to obtain legal advice both from a family lawyer who has experience of negotiating and drafting financial settlements on divorce or separation as well as separate and co existent financial advice from an accountant. Your accountant can work with your solicitor to highlight the potential tax consequences of any settlement proposed in negotiations with your spouse.
Judkins Solicitors have specialist family lawyers who can offer a professional, efficient, and confidential service dealing with all aspects of family law, including cohabitation and pre marital agreements, advice for cohabiting couples, divorce and separation, financial settlements, and children matters. Judkins have the necessary experience to liaise effectively with your accountant to ensure you get the best settlement.