Why is Now a Good Time to get Divorced?
News article published on: 23rd May 2019
You might be thinking that delaying your divorce until later in the year, perhaps after the school summer holidays, or after 31 October when Brexit may have occurred. Not necessarily so.
There are important tax considerations, which can mean starting your divorce around now, close to the start of the tax year, will mean that you will have less tax to pay, then starting to divorce in the autumn or later.
This is because the Inland Revenue treat a separating couple as being married for the whole of the tax year in which separation happens. Thus, assets transferred between them as part of the divorce in that year are tax-free. The tax-base cost of the spouse receiving the asset is the original cost to the other spouse, not the value of the asset at the time of the transfer, nor any sum paid for it in lieu.
Giving yourselves the best part of the year is important because clients frequently underestimate the length of time taken to obtain the two final documents they need from the Court: (i) a Decree Absolute on divorce and (ii) a Financial Remedy Order (‘FRO’) setting out the financial settlement between the spouses. The FRO is the only legally binding document to record a financial settlement on divorce – this is the document that provides a “clean break” (if there is one) and is enforceable if either party reneges on the deal.
Most divorces take the best part of a year, some longer.
If you have investments, shares, more than one property, etc. which could incur Capital Gains Tax (CGT) if your interest was transferred to your spouse, now is the time to start divorce proceedings.
Another important consideration for CGT is where one of you has moved out of the family home. The family home is usually someone’s main residence and that is the property that they elect to be their principal private residence – tax-exempt from CGT.
From April 2014, the exemption from CGT on the final period of ownership of the main home was shortened from 3 years to 18 months. This can affect divorcing couples, because if things are very difficult and one spouse agrees to move out, they only have 18 months in which to sort everything out before CGT begins to accrue on any increase in value of their share of the family home.
If you have decided to divorce it is important to obtain advice from a solicitor, and tax advice from an accountant if you have assets that may be subject to CGT, so that you are aware of important deadlines after which your tax liability may increase.
Lisa Pepper is a family law solicitor and mediator. She is a partner at Osbornes Law. Follow Lisa on Twitter @LisaPepperLaw.