Separations and Divorce- Know the Tax Implications.

Many of us may know the old joke about the husband replying to his wife ' I wasn't thinking of spending that much', when she asks for a divorce for Christmas. There's a lot of truth in this, however, and it's important to seek the right advice.

This post is about the tax implications regarding divorce or the decision to separate. It is so important to take the advice of a tax professional when considering separation as the assessable person will lose their married person's allowance and married rate band for a full year after the separation. 

Nearly every separation or divorce involves maintenance and if paying a legally enforceable maintenance payment, you will be entitled to a tax deduction for these payments. The receiving spouse, however, will be taxed on the maintenance payments.  

You will not be entitled to a tax deduction for financial settlements further to a Separation or Divorce and the recipient will not be subject to tax on such payments. You will be entitled to the married tax credit on such payments but not the married tax band. These differences are important and could result in huge savings or losses and it is important to get advice.  

It is also valuable to know that providing both people are resident in the State, the separated individuals can choose to be treated as a married couple for income tax purposes. As well as that, maintenance payments are included in a legally enforceable Separation Agreement or Court Order.  

Submitting a joint election may solve signing documents into the future which, we know, many separated people do not want to do. In this event, maintenance payments are ignored for tax purposes which might be a considerable advantage and if a couple are on good terms, despite separation, this would be the way to go.  

Maintenance payments in any event, made for the benefit of children, are ignored for tax purposes. In relation to capital taxes, transfer of property is regarded as a no gain/no loss situation and liability will arise in the year of separation. Any capital losses may be transferred between the spouses in the year of separation. 

Tim Shannon has over 30 years experience with Family Law and is here to help you and give any advice about the situation you may be faced with regarding your separation or divorce.  

Based in Swords, Co. Dublin, you can call Shannons Solicitors on 01-8401780 or e-mail tim@shannons.ie for a quick and informative reply.