In a divorce settlement, when considering the value of the assets, it is essential to ensure that the net value of those assets are accurately obtained.
Apart from ensuring a proper valuation of the asset, it is important to deduct the amount of any borrowing, sale costs (even if the asset isn’t to be sold then and there) and any tax (usually CGT) which would be payable if the asset was sold. Inevitably this is an artificial calculation but the reality is that the asset can only be truly valued net of any latent or potential tax. In most cases the asset is transferred between the spouses without the immediate payment of tax but it is still important to factor in the latent tax as this would still be payable if the asset is subsequently sold.
There is otherwise a clear risk that an injustice will be done to one of the spouses. A simple example illustrates this:
Husband and wife agree to divide the family assets equally. Husband transfers his interest in the family home worth £500,000 to his wife, wife transfers her interest in an investment property worth £500,000 to the husband.
The wife takes the family home free of any tax and therefore receives equity of £500,000.
The husband however takes the investment property which is subject to CGT of £140,000 and therefore only receives net equity of £360,000 – not equally as intended.
It is therefore important to obtain tax and legal advice at the earliest opportunity, preferably prior to separation.
Andrew Barton is a partner in the Stephens Scown Exeter Family solicitors team and a Resolution Accredited Specialist in complicated financial matters arising from divorce. He regularly advises clients in relation to pre-nuptial agreements, as well as divorce and financial matters.
Stephens Scown has offices in Exeter, Truro and St Austell. Its top-rated family team advises clients on a wide range of family law issues including divorce and family finance. To contact Andrew, please call Exeter 01392 210700, email firstname.lastname@example.org or visit www.stephens-scown.co.uk