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Divorce: protecting your net worth

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Catriona Coady

Private Client Tax and Pension Specialist

Catriona Coady advises on the most complex tax and financial planning scenarios, from inheritance and succession planning to corporate structuring and business exits.

Catriona Coady advises on the most complex tax and financial planning scenarios, from inheritance and succession planning to corporate structuring and business exits.


Last May Irish citizens voted to amend the Constitution on a key social issue that has deep implications for family relationships. Yet unlike earlier referendums on marriage equality and abortion, the referendum on liberalising the divorce regime barely stirred an opinion among the electorate.

The result was effectively a foregone conclusion, with more than 82% voting in favour. In fact, the 'yes' side was such a dead cert to win that 'no' voters barely bothered to campaign against the change.

Clearly, divorce is today a less controversial subject than it was in 1995 when Ireland decided - by the barest of margins - to allow couples to dissolve their marriages once they had been living apart for four years out of a five-year period. Removing that restriction and replacing it with a two-year waiting period seems both reasonable and compassionate.

Yet the lack of debate and quick consensus around the referendum meant that some of the consequences of the reform were never properly examined. While the benefits are clear, some significant costs will remain hidden until they become problems for divorcing couples.

In financial planning, we talk about the Three Ds - death, disease and divorce - as the major catalysts for changing people's fortunes, for better or worse. A death in the family triggers an inheritance; disease prompts a sale of the family business; divorce entails a division of joint assets.

None of these life events is simple to navigate, either emotionally or financially. But divorce might be the most challenging due to the conflict inherent in marriage breakdowns and because of the technical difficulties of arriving at a financial outcome that is equitable for both parties.

Financial planners see it up close. Even in divorces where there is little personal acrimony, dividing up wealth and property is a delicate process with major consequences.

To take one example: pensions are often viewed as the next most valuable asset in a divorce after the family home. But carving out assets and benefits from a pension by means of a pension adjustment order during divorce proceedings is fraught with complexity requiring informed advice, sensitive handling and plenty of time to get it right. Given that the tax implications arising from pension adjustment orders can persist for many years after a divorce is finalised, the arrangements should in no way be rushed through.

Following the change in the law, having half as much time to make life-altering decisions regarding very valuable financial assets such as pensions can make it twice as hard to get it right.

Although requiring couples to wait a minimum four years to get on with their lives was not fair, rushing through a process without clear financial guidance can create significant complications that last far beyond the separation period and divorce process. It would be a bad outcome indeed if parties to divorce felt compelled to come back to court for a 'second bite' due to an unsatisfactory financial resolution of a marriage breakdown.

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