Divorce

For example, Judges in England treat the traditional ‘bread winner’ and ‘homemaker’ roles on an equal footing. Further, they do not necessarily exclude non matrimonial assets from a divorce settlement (e.g., inherited assets or those owned before the marriage), if both parties’ reasonable needs cannot be met by the ‘matrimonial pot’ of assets. The 2022 introduction of ‘no-fault divorce’ (i.e., blame is not apportioned to either party for the breakup) in the UK now provides a less confrontational option for couples, which is not available in many geographies.

In an upwardly mobile world, where it is not unusual for spouses to move internationally and reside and work in different countries (sometimes even different to each other), divorce can result in a jurisdictional race, with each party trying to file for divorce where it would be most beneficial for them. In these international cases, unsurprisingly, financially weaker parties are more likely to favour their divorce case being heard in England.

In the remainder of this article, we set out the aspects of divorce cases with an international element, where Crowe’s Financial Foresight Team can help.

International asset tracing

A significant problem during the early part of matrimonial proceedings, particularly in international cases with significant assets involved, is establishing the actual assets the parties own, both from a valuation and location perspective. Parties can sometimes be best described as ‘less than forthcoming’ when obligated to honestly disclose their assets.
Crowe can tap into its global network, to undertake comprehensive international asset tracing exercises to identify shares in businesses, investments, pensions and property held by specific individuals.

On occasion we have undertaken international asset tracing for a party before they have even started the divorce process, when there have been serious concerns that a spouse will not be transparent about the assets that they own. Such a strategy can reap huge dividends, with the respondent’s honesty instantly put into question when it can be evidenced to the Court that they have not disclosed either all of their assets, and / or the true value of their assets.

Expert witness services

Expert witness services in matrimonial cases are the ‘bread and butter’ of our Forensic Accounting and Tax specialists, where we act as either a party appointed, single joint or shadow expert. Whether it involves international or wholly domestic assets, typical instructions we receive include:

• Valuing the business interests of the parties, usually being shares in companies or interests in partnerships
• Assessing the impact of taxation on the net value a party would receive, were they to sell or transfer business interests
• Reviewing the liquidity of businesses and identify any surplus assets (i.e., identifying what can be extracted from a business for settlement without adversely impacting its day-to-day operations and the most tax efficient way of doing so)
• Identifying the sustainable income (both gross and net of tax) that the parties can likely derive from the business on an annual basis going forwards.

On occasion, certain niche areas may arise, such as identifying and quantifying asset stripping, opining on passive growth scenarios or assessing the quantum of post separation accruals.

Tax planning

Divorces inevitably result in some kind of asset division, sale or transfer and ensuring this is accomplished in a tax efficient manner can make an enormous difference to the size of each parties’ share of the ‘matrimonial pot’ they eventually receive.

Anything with an international angle has long been an area of special interest for HMRC. Tax, by its very nature, can be something of a minefield when factoring in matters such as residence, domicile, offshore business or personal structuring issues, which all significantly add to the complexity. Very often, taking Crowe’s advice at an early stage in divorce proceedings is critical in determining the optimal timing for any transfer or disposal of assets. It is essential to understand the tax implications of the use of funds held offshore to satisfy a financial settlement, as significant tax liabilities can arise if this aspect is not reviewed.

It is also worth noting favourable changes to UK tax that became law in April 2023. Divorcing spouses are now able to transfer assets between each other up to three years after the tax year that they stop living with each other, without having to consider capital gains tax (although this time period would end earlier if the court pronounces the final order / decree absolute).

Previously such transfers had to be completed by the end of the tax year in which the couple stopped living together. However, vigilance must be maintained in respect of international tax law, as overseas jurisdictions may not recognise such exemptions.

Crowe’s Tax specialists can provide guidance on minimising tax liabilities on divorce, quantifying the tax exposure from the proposed settlements to assist the parties in reaching a conclusion.

Wealth management

It is not uncommon during the course of a marriage, for one of the parties to have little or no involvement in the management of the family finances. Upon divorce they might find themselves with a plethora of assets of substantial value in various international jurisdictions, that they now have the responsibility for, but have little idea themselves as to how to best manage them.

Crowe’s Financial Planning specialists can provide financial coaching, impartially advising individuals on their different options and modelling the potential outcomes of different strategies.

They deliver well-researched, unbiased solutions across the whole international market. Also, where a divorce settlement has resulted in a pension sharing order, they can provide advice on the best methods of implementation.

Tax resolutions

A lack of expert advice in respect of international and / or domestic taxation issues, be that historical matters or those relating to the division of assets upon divorce, often leads to tax errors (especially as already complicated tax rules evolve rapidly) and hence HMRC tend to invest their time in reviewing offshore issues.

However, disclosures to HMRC to rectify tax issues are not straightforward. An international element adds to the complexity and brings in additional issues such as the number of past years to consider, the level of penalties and potential mitigation factors. This in turn impacts on what documents and information HMRC can legitimately demand when exploring what has been, or needs to be, disclosed.

Crowe’s Tax Resolutions specialist can provide expertise, by way of expert opinion or advice, on matters such as:

• Disputes with HMRC in respect of powers used to demand information
• Disputes over tax assessments for past years (known as discovery assessments)
• Disputes over penalties, which can be 200% of the tax owed where offshore matters are concerned, more in some rare circumstances, or
• Professional negligence claims where a person with an offshore structure was not properly advised.

Raising capital for settlement

With the parties in a divorce usually aiming for a clean break (i.e., no financial ties post settlement), there may be a need to release cash tied up in international or domestic assets to fund a settlement.

All or part of a business may need to be sold, in which case Crowe’s Corporate Finance specialists are well placed to support business owners in selling their interests in domestic and cross-border markets, or selling to private equity and management teams. Alternatively, Crowe’s insolvency specialists could assist in executing a solvent liquidation of a business, if this is perhaps the most appropriate strategy.

One of the parties may be looking to raise debt or equity to fund a settlement, particularly if there is an asset that they are keen to keep post-divorce. Crowe’s debt advisory specialists would seek to align funding solutions with specific objectives, identifying possible debt solutions and assist in navigating the hurdles of a chosen solution.

Final thoughts

Navigating a divorce can be a complex, emotional and painful process and that is before you even start to consider finances. This is magnified when there are international complexities.

A top ten global accounting network, Crowe Global has over 220 independent accounting and advisory firms in 150 countries. Our Financial Foresight Team can tap into this global reach to assist, advise and support the parties with the numerous accounting issues that can arise upon divorce.