Separation Divorce & Death

Separation

A husband and wife, who are not living together are not as taxed jointly if they are separated and divorced or separated in circumstances in which the separation is likely to be permanent. The reason for living apart, such as living with a new partner, may be relevant to showing separation. It is possible for persons to be separated while living in the same house. This may be shown by factors such as physical division of the house, economic necessity and separation of expenses.

A separation of spouses may be by court order or separation agreement. The key issue is  whether the separation is such that it is likely to be permanent.  This implies that they have lived apart over a period, generally for at least one year.  It is not applicable if they live apart temporarily and intend to get back together or if the separation is  due to circumstances beyond their control.

Each spouse is taxed as a single person from the date of separation. The assessment is made on the assessable spouse  for all income of both  spouses to the date of separation and for the single income to the year end.

That person is granted the married persons tax credit and standard rate band(and potentially the increased standard rate band if available). The other spouse is treated as a single person from the date of separation and receives the single persons tax band and credits.

Maintenance

There are options in relation to maintenance payments, paid by one separated spouse to the other for the benefit of that spouse or for children. The payments can be treated as the income of the recipient and taxed accordingly. They are thereby excluded from the paying spouse’s  income.

Alternatively, the parties can choose to be jointly assessed.  Under joint assessment, the  income payment is ignored.  One option may be more favourable than the other. Maintenance payments for children are ignored in the case of joint assessment.

The legislation requires the maintenance payments to be legally enforceable in order to be deductible.  This may be under court order or maintenance agreement.  The legal obligation may arise by the general law of maintenance.

If payments are made voluntarily they are not tax-deductible nor are they taxable in the hands of the recipient. This may happen before formal separation agreement or court order

Where the payments wholly and mainly maintain the other party the payer is entitled to the married persons tax credit but not the increased standard rate band. This requires that the payment is substantial.

Each is thereafter assessed as a single person. If there is one or more dependent children the single person’s child carers credit may be available together with a additional standard rate band for a single person

Other Options

Separated spouses may elect for joint assessment if they are both tax resident in Ireland and annual periodical legal payments are made in the tax year.In this case, there is no deduction for the payer spouse and the maintenance payments are not taxable in the hands of the recipient. The single person child care credit may be available where there is a dependent child.

The incapacitated child credit may be apportioned based on the respective maintenance paid for the child. The spouse who pays maintenance is regarded as making a contribution towards maintenance even if paid to the other spouse for use to maintain the child.

Divorced Spouses

The option to joint assessment for divorced couples requires that they be resident in the State and they have not married again.  The married person’s credit is available under the election.  Separate assessment applies, but the payer’s income is not reduced by the maintenance payments.

The provisions in respect of payments of maintenance post-divorce are similar to those in respect of actual and legal separation. Maintenance payments including those arising under the divorce decree or by  agreement following divorce are deductible in the payer’s tax assessment in the absence of an election for joint assessment. There are taxable as income for the recipient spouse. No withholding taxcis required on the part of the paying spouse.

Divorced couples can elect for joint assessment if both are resident in Ireland,  neither has remarried and annual or periodic legally enforceable maintenance payments are made in the tax year. In this case, maintenance payments are ignored and there is no tax deduction for the paying former spouse. The former spouse recipient is not taxed.

Death

The deceased spouse is  assessed in the name of the personal representative. The personal representative will usually have an obligation to make the tax return There are additional tax credits and favourable treatment  in the year of death.

In the case of a jointly assessed spouse, where the assessed spouse dies during the tax year, the surviving spouse is taxed for the full year on his income and on that of the non-assessed spouse to the date of death.  The assessed spouse receives the full married person credit, PAYE credits for both if available and the maximum standard rate band available for the year.

The non-assessed souse is  subject to single assessment from the date of death until the end of the tax year. In addition to the full credits available in the joint assessment return, the non-assessed buyers are entitled to the personal tax credit and PAYE credit and single person band. This is effectively a unique concession in the year of death.

Cessation on Death

Death has various implications in the context of taxation. Normally,  death leads to a cessation of the trade carried on by the deceased. The various termination provisions, discussed in other chapters apply. However, where trading income passes to the surviving spouse, Revenue allows a direct transfer by concession so that the normal termination rules do not apply. Instead, the income is treated as continuing.

There is a cessation in respect of the non-assessable spouse’s sources of income. By way of concession where the deceased spouse was assessable under Schedule D Case I, II,III, V the source passes to the surviving spouse.  Revenue will allow the source to be deemed to continue, if it is more beneficial and the spouse did not possess any other income sources. Various clawbacks which might otherwise apply may be avoided under this concession.