The Divorce, Dissolution and Separation Act 2020 will change the way we deal with divorce and separation. You will no longer be required to raise your partner's conduct to obtain a divorce or separation such the most commonly used grounds of adultery (for opposite sex couples), unreasonable behaviour, or wait at least two years to prove that your marriage or civil partnership has irretrievably broken down.
The new “Non-Fault Divorce” is expected to come into force in both England and Wales on 6th April 2022 and will bring an end to the current standpoint. Some elements remain the same in that the condition that divorce is still based upon the irretrievable breakdown of a marriage. However, separating couples can decide to make a joint application where there is a general agreement that the relationship has broken down, or there can be a sole application where one of the parties may apply for the divorce. We have spoken to a lot of clients who want to wait until April to start the divorce process so that it can be more amicable, but a lot of people do not know there shall be a minimum of 20 weeks between issuing the application and reaching Conditional divorce/separation, you will then still need to apply for the final stage of the divorce. The 20-week period gives the parties the opportunity to reflect upon their relationship and opens the possibility of reconciliation.
However, where assets are transferred or disposed of such as transferring a property to your spouse, this could give rise to capital gains tax (CGT) if the transfer takes place the tax year after separation. It is vital that you obtain advice before 5 April. If couples separate at the beginning of the tax year (on 6 April), they will still be able to transfer assets without any CGT liability up until the end of the tax year on the following 5 April. However, where a couple permanently separate at the end of the tax year there will be little time to transfer assets without paying CGT.
We find many couples separate and one party leaves the family home. This can create issues if the family home is later sold as part of the divorce. A potentially very valuable relief called “Principal Private Residence Relief” (PPR) can be available upon sale or transfer of a dwelling house which has been the owner’s only or main residence. However, if the departing spouse has not used the family home as their primary residence during the period since moving out, PPR may not apply in full to their share. Currently, the potential tax-payer is eligible for relief for a nine month period even if that house is no longer their main residence.
In November 2021, the Government reviewed the CGT position for separating couples and recommended that the “no gain/no loss” window on separation will be extended to the later of either: –
A) The end of a tax year at least two years after the separation event, or
B) Any reasonable time set for the transfer of assets in accordance with the financial agreement approved by a court.
This is unlikely to come into effect before the nonfault divorce, therefore it is important you obtain advice at this early stage and think carefully about your tax consequences of delaying the divorce.
At Sweeney Miller Law we urge you to seek independent legal advice on your individual circumstances as not all cases are dealt with the same.
