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George Osborne's first budget as Chancellor took place on 23 June. In its aftermath there has been a good deal of helpful advice on offer from accountants and other financial professionals with suggestions as to how tax can be mitigated against.

The suggestion that remains popular and widespread amongst financial professionals is to transfer assets between spouses. This may have significant benefits in terms of mitigating against both CGT and income tax.

What this advice sometimes ignores however is the impact such transfers might have in any divorce proceedings that follow.

Since the House of Lords ruling in Miller v Miller in 2006, the divorce courts are prone to basing quite a few assumptions on how an asset is owned. Ownership can imply involvement, control and strategic input into an asset and any increase in its value. Whilst it may be possible for the other spouse to demonstrate the reality through a complex and detailed explanation to the Court, this can be costly and ultimately unsuccessful.

The risk is best explained by reference to a couple of examples, (please note that no tax advice is being given here).

Property example
A husband, looking to capitalise on his wife's income tax band and annual exemption for CGT, transfers a rental property into her sole name. He received the property from the estate of his late mother, and throughout the marriage has dealt with its management and upkeep himself. His wife unexpectedly commences divorce proceedings and wishes to keep the rental property. Whilst the husband is able to demonstrate its source, the wife has received the income and as the legal owner is named as the landlord on the rental agreement. This may leave him with an uphill struggle in having the property transferred back to him.

Corporate example
The wife is the sole shareholder in a successful recruitment company. The husband pays tax at a basic rate and so in order to save on income tax they agree that 40% of the shares should be transferred to him. The marriage breaks down and he claims to have had an ‘administrative involvement in the business, without which it would have been doomed to failure. The onus is on the wife to demonstrate this was not the case.

There may be definite tax advantages in carrying out these transfers however his may not compare well with the cost and hassle of arguing that the assets in question should be transferred back in the event that marriage breaks down. With some estimates putting the divorce rate at close to 50% in this country, this is a consideration that should not be ignored either by the individuals concerned or their advisors.

If you would like to discuss any of the points raised here or some of the measures that can be put in place to safeguard your wealth in these circumstances, please fell free to contact me on 01392 210700 or by e-mail.

Andrew Barton is a family solicitor and Resolution Accredited Specialist in complicated financial matters arising from divorce. He regularly advises clients in relation to pre-nuptial agreements and other forms of wealth protection, as well as divorce and financial matters. Stephens Scown has offices in Exeter, Truro and St Austell. Its top-rated family solicitors advise clients on a wide range of family law issues including divorce and family finance.