Divorce and tax considerations for the new year
4th Jan 2015
An expert gives advice on the questions divorcing couples should be asking about tax.
Helen Adams, director of BDO Tax Dispute Resolutions, has stated that as we enter a new year, many find themselves re-evaluating their life and deciding where it is going, which can often mean looking at their relationships. January is ‘notorious’, she notes, as being a time when many couples consequently file for divorce. In January 2014, law firms nationwide reported 50% more initial appointments with clients both new and existing to discuss divorce.
With divorce being a ‘difficult and emotional journey’ anyway, Adams advises on the tax consequences of divorce that couples should take into account when going through the process. Though children and money are usually the priorities in such situations, tax should also be an important consideration, as there are many tax issues that can ‘affect each party’s wealth before and after separation and divorce’.
The first of the key areas that should be looked into is calculating the value of net assets held by each party in the divorce, which will then be divided. Specialist valuations may be needed in certain situations such as when dealing with property. The assets each party wants to have after the divorce will need to be looked at, which includes cash, shares or property. Advice may be needed to quantify Capital Gains Tax after the sale of the assets if cash is desired.
Both parties will also need to consider whether they need to file for tax returns in the UK or overseas, depending on income and gains after divorce. Tax consequences of payable maintenance to a child or spouse should be checked, particularly if it is a foreign court order.
Finally, life assurance policies and pensions are more complicated, and the rules regarding pensions are currently changing. Adams states that advice should be sought if a divorce affects these.