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Family Law Blog

Comment on divorce & family law 

The taxman loves divorce

2 Comments

Divorce can be very taxing

Surprisingly to many people, there are actually quite a few tax implications of the ending of a marriage or civil partnership. Many are also surprised to hear that, for income tax purposes, the relevant tax year of change is the year in which the people separated and not when the actual divorce went through.

A ”snapshot” of some of the issues would include:

  • Any tax credits sorted out during the marriage or civil partnership need to be reassessed 
  • Any family business (and take care, many businesspeople make their spouses a partner in their business often in name only and usually misguidedly) may well have a differing tax situation as a result
  • During marriage or civil partnership assets jointly owned by the couple attract an assumption of equal entitlement to the income from them. Afterwards that ends and the income, thus tax liability, depends upon who actually does own them so one of the couple could have a higher liability. 
  • Pensions. Too complex to helpfully discuss here but certainly the impact of relationships breaking down should be considered in relation to pensions especially if a pension sharing order is made as there are rules which sort out the effect of a pension credit on a lifetime allowance. 
  • Inheritance tax planning. The relevant date here would be the date of decree absolute or of dissolution. 
  • Capital Gains Tax. A complex area and specialist advice is normally needed but do take care as transfers between spouse or civil partners are normally free of tax. This is normally continued during the tax year of their separation but stopped thereafter. There are other rules about the house they shared (“former matrimonial home”).


Andrew Woolley
Divorce lawyer

Comments

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Some really good points here. I would add that by divorcing you lose the transferable Nil Rate Band for inheritance Tax Purposes, and more widely people really need to make new Wills after separation or divorce.
http://www.silverliningep.co.uk ...

By Stephen Wilkes on Monday July 26, 2010

Stephen
Thank you for your added point.
It is indeed important to make a Will in those circumstances. As we specialise in divorce work, we do not do them but always advise them. Sad so many people do not make one….

By Andrew Woolley on Monday July 26, 2010

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