Divorce – Foreign Element Means Potential Pitfalls

With more than a tenth of UK marriages now involving a person who was not born in the UK, problems resulting from either spouse having a foreign domicile are becoming increasingly common.

It follows that with 40 per cent of marriages ending in divorce, things can be complicated if one of the divorcing couple is not domiciled in the UK.

The difficulties can become particularly significant if a financial settlement on divorce has to be financed by assets that are held abroad by a non-domiciled person who has not remitted them to the UK.

The tax position can become extremely complex in such cases.

For example, when such assets are remitted to the UK, they may well lead to a Capital Gains Tax (CGT) liability arising.

One possible way to prevent a transfer giving rise to a CGT liability is for it to be made abroad before the decree absolute and not ‘remitted’ to the UK until after the decree absolute. However, the non-domiciled transferring spouse will need an enforceable indemnity from the recipient spouse for any tax and penalties that might arise if the recipient creates a liability for his or her ex-spouse. This, in the context of a divorce, might be difficult to achieve.

This is just one example of the complications that can arise when a divorce involves an element of foreign residence or domicile.

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