Marital Loss And Capital Gains 

Published on 13 April, 2023 | Ellen Fell

Last year saw the introduction of the most significant reform of divorce law in half a century.

The introduction of the Divorce, Dissolution and Separation Act meant that individuals who believed that their marriages had failed no longer had to apportion blame for those relationships having irretrievably broken down (

However, as experienced family lawyers, we are all too well aware that the majority of disputes which arise on divorce are generally due to disagreements about how to divide joint marital assets and not because of the facts presented or allegations made during the process of obtaining the conditional or final orders.

Over the last 30 years, for instance, one of the factors potentially causing stress during negotiations about finances has been the impact of rules on Capital Gains Tax.

Tax legislation which took effect in 1992 meant that spouses were given 12 months’ relief from Capital Gains Tax (CGT) liabilities which occur when assets such as the family home, company shares or investments are transferred after marriages end.

CGT still had to be paid but that was done only when the assets in question were sold. The temporary pause was very helpful as it reduced the pressure at a time when one household was being split in two.

Nevertheless, it had an unintended effect in that husbands and wives found themselves attempting to negotiate a fair financial settlement against the clock because the relief only applied until the end of the tax year during which a couple separated.

A 2021 report produced by the Office of Tax Simplification (OTS) recognised not only that couples might schedule their splits to give themselves as much chance as possible of capitalising on the tax benefits but that, even then, divorces often take longer than 12 months to conclude (

Recently published figures from the Ministry of Justice (MoJ) serve to prove that last point (

They show that couples it takes 67 weeks on average from the date at which a petition is submitted until couples obtain their final divorce order.

The OTS recommended that ministers extend the window from its current 12 months to “at least two years after the separation event”.

Legislation to that effect has come into force from the sixth of this month (

It is hoped that it will reduce at least some of the tensions which the OTS identified.

Yet as myself and my colleague Andrew Newbury have written in an exclusive article for The Times, the new law may not eradicate all potential problems (

Some couples apply for their final decree before obtaining the consent order which concludes the financial terms of their divorce. It remains to be seen whether tax authorities will regard the point of the final decree as the effective date of transfer, which would create its own difficulties.

In addition, before the new rules came into effect, the Government announced that the CGT-free allowance would be halved in 2023/24 and reduced by a similar proportion in the following tax year, leading to spouses weighing up whether to wait or dash to finalise a divorce.

The law also relies to a degree on those going through a divorce understanding the finer details of how the new arrangements will work.

As the MoJ’s own data indicates, less than one-third of couples who divorce put consent orders in place. That means many tens of thousands of individuals might not realise the longer-term relief now available.

We may only have clarification once a large number of divorces relying on the new rules have been completed.

In the meantime, it is arguably even more important than before that those facing a marital collapse take guidance from a family lawyer in order to avoid finding divorce not just emotionally taxing but the source of a large bill from HMRC too.

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