When a couple divorces or separates, they need to agree how their finances will be divided. This can include property, pensions, savings, investments and maintenance payments. Where possible, reaching an agreement without going to court can be quicker and less expensive. In England and Wales, however, an agreed division of assets will generally need to be approved by a court through a consent order if the couple want the agreement to be legally binding.
Tax is an important consideration when restructuring assets. Under current Capital Gains Tax rules, separating spouses and civil partners are given an extended period during which assets can be transferred between them on a "no gain, no loss" basis, meaning that no immediate Capital Gains Tax (CGT) liability arises. The normal period runs until the earlier of the end of the third tax year following the tax year in which the couple ceased living together, or the date on which their divorce, annulment or civil partnership dissolution becomes final.
There is an important further concession. Where assets are transferred between former spouses or civil partners in accordance with a formal divorce or separation agreement or court order, no gain/no loss treatment can apply without a time limit. This means that qualifying transfers may still benefit from the relief even where they take place some years after the couple separated.
No gain/no loss treatment does not normally eliminate the underlying capital gain. Broadly, the person receiving the asset takes over the transferring partner's CGT base cost, so the accumulated gain may become taxable when the recipient eventually disposes of the asset. Special rules can also apply to the former matrimonial home, including provisions affecting Private Residence Relief.
Anyone dealing with significant matrimonial assets should therefore take specialist legal and tax advice before assets are transferred. The timing and terms of the divorce or separation agreement can have important consequences for the eventual tax position.