- Investment properties. It is crucial to seek advice on what tax may be payable on disposal. Tax is a liability (the same as costs of sale) that should be deducted to arrive at the value used for negotiations. If property is owned abroad, advice about the tax implications in that jurisdiction must be sought.
- Investments. Not all investments are equal when it comes to valuations. Whereas the value of a listed security can be found instantly, obtaining the valuation of a private equity investment – which may only be valued quarterly – can take time and effort. One must also be aware of the volatility of investments, which can fluctuate significantly in value – particularly in the case of cryptocurrencies, which display daily volatility.
- Pensions: Pensions are a complex area of financial planning, and so care must be taken in ensuring you know what sort of pension you are dealing with, and how to value it, as not all schemes are the same. Some valuations require the services of an actuary, whereas some can simply be done online. For those provided by an actuary, the valuation is set for three months and then expires, so again there is an emphasis on ensuring you are using an accurate valuation. Some pensions carry additional benefits, such as a guaranteed annuity rate, which is not reflected in the transfer value received. When these pensions are then valued on a real-life open market basis, the value can be higher than initially thought.
If latent tax on an asset is not accounted for or deducted when considering the value, the impact can be severe. If one spouse retains an asset upon which tax will arise, they will end up with less than anticipated as part of the agreement.
Tax efficiency
- ‘No Gain, No Loss’. Spouses living together can take advantage of the ‘no gain no loss’ rule, meaning assets transferred between them are not liable to capital gains tax. Applying this to divorce proceedings, this is not available if the transfers are completed after the end of the tax year in which the separation occurs (though this time period is currently under consultation). Should assets be transferred outside of this window it could lead to significant tax bills, ultimately reducing the value of the matrimonial estate.
