PensionsJan 9 2023

Couples must tackle financial issues early in divorce process

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Couples must tackle financial issues early in divorce process
Credit: Cottonbro/Pexels

Try to be clear-headed about the family home 

One spouse often wants to keep the family home when getting divorced, especially where there are children involved.

Glassman warned however that this does not always make sense, particularly when taken into context with other existing assets.

“Property is usually the biggest asset, and if one partner wants to stay in the family home, they will often have to forgo the majority of the other assets such as savings and pensions.

But he warned: “A property one lives in doesn’t produce an income and parts can’t be sold to meet spending.”

“Furthermore, 2022 saw the end of ultra-low mortgage rates. What was affordable for a family last year may not be so when one party needs to remortgage. So think about spending as a whole and not just the tenure of the matrimonial home, and if the family home is paramount consider the compromises this might result in.”

Be cognisant of capital gains tax regime change 

Transfer of assets between spouses takes place on a ‘no gain, no loss’ basis for CGT purposes which means that no tax is realised on the transfer, with the receiving spouse effectively taking the other spouse’s base cost. 

However, this special rule for spouses currently only applies up to the end of the tax year of permanent separation.  

Glassman explained: “But under the new legislation, transfers of assets between ex-spouses on or after 6 April 2023 will be available for up to three tax years after the end of the tax-year of separation, or an unlimited time when the assets are transferred as part of a formal divorce agreement. 

“Those currently separating who have a range of property or investment assets to divide might think about deferring their formal separation until after April to take advantage of this more flexible regime.”

The importance of pensions   

According to Glassman a pension can be one of the biggest financial assets that a person has, so it’s important to take them into account when agreeing a divorce settlement – particularly in cases where both spouses are retired. 

“We have seen the average age of a couple getting divorced rising, and alongside pension freedoms introduced in 2015 this has created a greater emphasis in recent years on pension assets in divorce settlements. 

“When a couple is in their 60s, pension pots are likely to be at their greatest value, and the issue can become contentious when, as is often the case, one spouse (typically the male) holds the majority of pension wealth,” Glassman said.

There are various options for how pension assets can be allocated.