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Divorce is the second-most stressful event that someone can experience after the death of a spouse (according to the Holmes and Rahe stress scale). However, getting divorced as an expat can be even more challenging. Different citizenships, legal systems and asset locations can further complicate things.
In this guide, we offer some thoughts on how to navigate your financial plan whilst living overseas and going through a divorce. We hope these insights are useful. If you want to discuss your financial plan with a member of our team, please get in touch to arrange a no-obligation financial consultation at our expense:
+34 966 460 407
info@scottsdale.eu
The nature of expat divorce
Most British divorces occur on UK soil between two British nationals. Although the process can still be complex, domestic laws largely apply to both divorce parties. The assets – e.g. property, pensions and savings – are mostly based in the UK, helping with the distribution process.
However, for an expat couple, things can be very different. Both parties (e.g. a husband and wife) may be living outside of their home countries. Perhaps one person is a native citizen, but the other is a British expat. This can hugely complicate difficult questions such as:
- Which legal system governs the divorce proceedings?
- How will assets be divided?
- How will child custody be arranged?
- What kind of alimony or financial support will be involved?
Given the vast number of variables, it is impossible to cover everything in detail in one guide. However, below, we highlight some key factors for expat couples going through a divorce while living in Europe.
Dealing with pensions
It may surprise you that we are jumping to pensions here. Yet, pensions can be very valuable assets, and these can be neglected in divorce cases. If you are a British expat divorcing in Europe, please note that you will likely be subject to the UK’s rules for dividing pensions.
This can be difficult for divorcing couples where one person is a citizen of a European country, which may have different rules about marital property division. For instance, under UK law, a divorced British person must include their pensions in the final settlement (e.g. using a Pension Sharing Order). However, a Spanish national governed by Spanish law may not be required to share their pension(s) if they are deemed “private” rather than “matrimonial” assets.
This complexity highlights the need for specialised legal advice if you are a British expat considering divorce. Make sure you know what you are getting into beforehand so you are not blindsided by surprises later.
Financial preparation
Getting divorced overseas can throw up lots of unexpected financial costs. Money might move differently between accounts, perhaps due to new living arrangements. If you are a British expat with some kind of “dependent” status (e.g. you get your visa through your spouse’s employment), then you may need savings to pay for administrative costs.
Your expenses for housing, food and wider lifestyle may change. Your income may even alter. It is difficult to predict what your “new normal” will be as you navigate the divorce process. Therefore, it will help to have extra savings ready – i.e. beyond your normal “emergency buffer” of 3-6 months’ living costs – to help cover legal fees and other expenses.
Do not forget about tax
Many people struggle to find the headspace to think about tax during divorce. We understand. However, neglecting this vital area could cost you significantly later. For instance, rushing through a divorce to “get it done” could inadvertently land you with a large capital gains tax (CGT) bill if you sell assets without thinking it through.
Your residency status plays a big role in your tax responsibilities as a British expat. Going through a divorce could change your status (e.g. if you move out and relocate back to the UK). For instance, generally speaking a British national with “non-resident” status does not trigger CGT in the UK if they dispose of “non-UK assets.” However, if you move back to the UK and become resident there, you may need to pay CGT in the UK on the disposal of overseas assets.
Laying a safety net
As you finalise your divorce and start moving into your new life, it is vital to safeguard your financial interests as you re-establish yourself. For instance, if you are going to receive alimony or child support, you might consider using a life insurance policy to protect these payments (e.g. if your ex-spouse dies suddenly and can no longer provide the income).
You may wish to re-examine your estate plan if you have children or other dependents. Trusts, for instance, can help protect and manage assets in the best interests of your beneficiaries, as well as add some protection against future judgements or creditors. In some cases, a post-nuptial agreement can provide legal clarification about how the assets have been divided in a divorce and the financial responsibilities everyone has – even if situations change later.
Invitation
If you are interested in discussing your own financial plan or inheritance tax strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
+34 966 460 407
info@scottsdale.eu