Sustaining income after a divorce

The first step was to develop a full understanding of Jane’s financial position based on the proposed divorce settlement, and to understand her short, medium and long-term goals and objectives. In addition, Nedbank Private Wealth was introduced to the husband, Ben, to similarly help him plan his own finances after the divorce was finalised.

We developed a complete picture of their finances by assessing their current and projected wealth, along with their income and expenditure. We worked closely with their tax adviser to ensure they fully understood the impact of capital gains tax (CGT) on the transfer of marital assets after the divorce was final. The most significant tax consideration, in the context of separation or divorce, is likely to be a potential CGT liability when assets are sold or transferred from one spouse to the other as part of a financial settlement.

For many couples, the marital home is likely to be the most valuable asset to be considered in a divorce. Pensions are also a financial asset in scope, but are often the least understood and one of most complex assets to manage to facilitate a fair financial split. And given there is no legal obligation for these to be included in divorce discussions, there is little, if any, agreement on how the pensions should be valued or used to offset other assets. However, other assets and investments, including second homes, may also be significant in deciding any financial settlement.

Timing is key here.

However, if such a transfer takes place in a tax year after the couple has formally separated, assets will be treated as passing at market value and, accordingly, any gain in value since acquisition will be taxable on the transferring spouse, subject to any available relief.