What happens to your investments if you separate?
Accumulating investments whether it be real estate, shares or what have you, is great whilst we have them and everything is running smoothly. Even better when you join financial forces with your partner and purchase the investments together! But what happens to them if you separate?
A couple of options are available and, given we are dealing with investments; each of the options will likely have tax implications for you.
1. It is sold.
If it is sold, then that is that. Because it was an investment (and if purchased after 1985) then Capital Gains Tax (CGT) may be payable. That is calculated by a formula that your accountant can assist you with. If a jointly owned investment, then the CGT is payable on each of your marginal tax rates. I usually make sure that there is provision in any Orders we may do up that states part of the net sale proceeds are to be placed into a trust account pending the calculation of the CGT liability, then those monies are used to pay the liability and the remaining monies distributed as per the agreement.
What if there is negative equity? Meaning when it is sold, there is debt left to pay. Who is liable to pay? That is not an easy question to answer in an article like this as there are a lot of questions that would be asked before I could answer it such as what is the estimated shortfall, what are each of your incomes, what capacity do you each have to pay, what other assets are available etc.
2. If the investment is in one person’s sole name, it may be that person keeps it.
There are no real issues here – there is no stamp duty to pay, there is no potential for a CGT to crystallise at the time that you separate/do a deal with your former partner as there is no transfer.
You may need to refinance the mortgage to pay out your former partner and in doing so you would need to get financial advice to see how best to structure the refinance to ensure it is tax effective.
3. If the investment is in joint names (or if in one person’s sole name), it may be that it is to be transferred to one or the other person.
This is the one where if it is not done properly can cost you a pretty penny. Why? Well, once someone transfers an asset, regardless of whether it is to your former partner as part of a family law property settlement or to a third party who is buying it, the transfer is seen by the Government as a ‘sale’ there is stamp duty that would ordinarily be payable as well as potential for a CGT liability.
However – if you have the transfer done by Orders (can be done by consent) then you would get a stamp duty exemption (i.e. nothing to pay!) and a CGT rollover relief (again nothing to pay! For now – it means that CGT will not be payable on this transfer but will potentially be payable at a later date if the person keeping the investment wishes to sell it).
Where to from here?
You are probably in one of three head spaces right now:
1. This blog post resonated with you but you are just not ready yet to do anything and just want to look at more information about Family Law – I suggest you look at the other Free Information we have on our website which includes FAQ's as well as Helpful Links and Contacts that may come in handy.
3. You are wanting more information about what you need to know after separation or you are ready to do something about your problem right now. If that is the case, then book an appointment with one of our Family Law solicitors by clicking here to make an online booking.
