With the countdown to the divorce referendum well under way, our tax and private client experts answer some of the more common questions clients have when it comes to the impact separation and divorce has on their tax liabilities. Whatever the outcome of the referendum Irish couples face complex tax rules and issues with regard to separation and divorce. Here we answer some of the more frequent queries we receive.
Question #5: My spouse and I are separating and are concerned about how the family home will be dealt with as part of the proceedings. We may also seek a divorce at some point in the future, how will this impact the family home.
Answer: One of the main concerns separating couples have concerns the fate of the family home. If the couple cannot reach an agreement as to who will occupy and own the family home, the court can make an order in relation to it.
An order in relation to the family home is usually applied for when applying for a decree of judicial separation, divorce or dissolution and is referred to as a Property Adjustment Order (PAO).
The PAO will confirm the following:
In the case of a married couple where there are children, the spouse with whom the children live will often be given the right to live in the family home until the youngest child reaches 18 or 23.
Irrespective of whether the separation or divorce is acrimonious or not, it is of utmost importance that the chosen course of action regarding the family home is formally dealt with and documented. The availability of CGT, CAT and Stamp Duty reliefs on the transfer of the family home between separated spouses or divorced spouses will be dependent on whether assets are transferred under a court order following a judicial separation or the granting of a divorce decree or under a Deed of Separation.
These reliefs were discussed in detail in one of our earlier articles.
If spouses have been separated for some time and then decide to apply for a divorce it is advisable that the issue of the family home is revisited where it is still held in joint ownership.
Couples should be mindful that, any settlement of property made without a court order after a divorce will not be exempt from tax. Stamp Duty, CGT and CAT could apply. Furthermore, for gift tax purposes, they will be deemed to be passing assets to and from strangers in blood and will only be eligible to offset the Class C Threshold (which is currently €16,250) against the value of the gift.
Finally, it is important to be mindful of tax issues that can arise in the future in respect of the family home long after a legal separation has been entered into or a divorce has been finalised.
When it comes to tax, the implications of informal separation, formal separation and divorce are different and can be complex. If you have any questions, please contact a member of our tax or private client teams.