The number of couples filing for divorce or dissolution has surged after simpler no fault divorce laws came into force in April. But the simpler process still requires financial advice.
Spouses or civil partners can now file for divorce (or dissolution for civil partners) jointly online, stating irretrievable differences. Partners no longer need to prove the other has acted unreasonably or committed adultery. Online divorce applications have risen to 8,000 applications a month.
While these divorces may be streamlined, separating couples should still seek financial advice, particularly if they are splitting assets like property and pensions. Evidence suggests fewer than two in ten divorces have pension sharing orders, although these are often the most valuable financial asset, after a family home.
Jointly owned property may also require capital gains tax (CGT) considerations, particularly if one partner is transferring their share to their former spouse.
Although there is normally no CGT on the sale of a primary residence, if a couple splits, and one now lives elsewhere, this tax might apply. However, if the property is transferred within the tax year of separation no CGT is due. This makes it important to get the timing of a sale or transfer right, as it could potentially result in a saving of thousands of pounds.
New rules from April 2023 should make this aspect of life easier for splitting couples. Spouses and civil partners will have up to three years to make what are known as ‘no gain, no loss’ transfers of assets between themselves after they stop living together.
These changes should make the CGT rules fairer and give the parties more time to negotiate a fair split of assets. New rules have also been introduced for those who maintain a financial interest in the matrimonial home after separation. A spouse or civil partner will be able to claim private residence relief (PRR) when it is sold, avoiding CGT on this transaction.
The Financial Conduct Authority does not regulate tax advice. Tax treatment varies according to individual circumstances and is subject to change.