RegulationMay 9 2013

It is a taxing time

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In addition to the emotional upheaval, there is a natural fear that the other spouse, lawyers or the taxman, will further erode the resources. Some therefore embark upon taking practical steps towards effecting separation. Before resorting to self-help and an early distribution of marital assets, some independent advice and consideration of a collaborative approach with the soon-to-be ex-spouse might help maximise the tax planning opportunities and minimise risks.

Early factfinding and sharing of data between spouses is essential as unilateral steps rarely assist anybody other than HMRC. Also, delay may reduce options available. Often one spouse will have more of the information than the other. Identifying where spouses are resident and domiciled may not be as straightforward a task as it sounds as different criteria are used by family courts to enable parties to litigate in England to those relied upon for fiscal purposes.


Financial factfinding is usually by way of a standard 27-page document (Form E), which is more comprehensive in scope than a UK tax return. Supporting documents for each figure is necessary. Values of assets and income streams are as at the time of valuation and not date of separation. Gross and net figures after disposal costs are needed even if in the short term assets are to be retained or transferred between spouses. Computations for any anticipated income or capital taxes are also needed.

This might involve gathering the impact of overseas tax regimes and treaties on the parties’ assets and income streams too. The factfinding exercise is front-loaded both in terms of cost and time but is an investment for the future of both spouses. It does need to be carried out at a pace that enables the widest range of options available to be considered and be proportionate to the level of wealth in the family.

Once both parties are clear as to the extent of the assets and income streams available and the way in which they are taxed, it should be possible to advise upon possible options for a fair division (the English legal criteria upon divorce) and embark upon any fiscal planning integral to those options.

The payment of spousal and child maintenance largely falls outside the English tax regime. It is usually paid out of taxed income and is not tax deductable for the payer. It is not generally taxed in the hands of the recipient. There may still be some who receive child benefit or child tax credits and planning should include ensuring that these are retained. Income streams will be sorely tested.