Latest figures show that one in every four Israeli Jewish couples will get divorced. And when couples own major assets including homes, land, or shares, the divorce generally becomes all the more difficult and painful. Some people say that you have to know who to divorce as well as who to marry - and I agree. Let's look at some important points (in the hope that you won't need them) that I have had to handle.
In instances where the divorce process is coupled with property issues, then the tax aspects should be taken into account when considering the optimal benefits for both parties, even though we are talking about an emotional event for the couple who are generally interested in untying the knot as quickly as possible.
The law is designed to help the couple who are getting divorced and attempts to make the process simple and easy. In the Betterment Tax Law there is a clause determining that the division of property between a couple, or passing it onto children, as part of divorce proceedings, does not warrant tax charges. Frequently, even after several years have passed, a couple find themselves forced to amend the divorce settlement and must receive court approval for this.
Even after the new division of part of the property, as part of an amended divorce settlement, the tax authorities view this as part of the original act of divorce, and do not see the exchange of assets between the couple as liable to tax.
For example, I recently handled a case in which the man was committed by the original divorce settlement to give his ex-wife NIS 1 million within three years. When the three years were almost up, it became clear that he did not have such a sum, and following a suggestion by his lawyer the divorce settlement was amended so that he gave an apartment to his ex-wife instead, which was worth about this sum.
Often a couple will reach a divorce settlement in which the balance of assets is valued by the couple according to the gross value rather than the net value of the assets. What does this mean? Let's say the couple getting divorced own an apartment in Givatayim worth $300,000, as well as land in Hod Hasharon worth $300,000. If the divorcing couple each takes one of the assets, then the person taking the land will lose out for several reasons. Firstly, there is a betterment levy when realizing land assets, a development and betterment tax, so that the net value of the land is considerably lower than $300,000. In contrast, when selling the apartment, there is an exemption from betterment tax. Clearly, in such a divorce settlement a mechanism must be put in to balance the difference.
And what about common law couples? Following a ruling by the High Court of Justice and a liberal approach by the Tax Authority regarding the status of common law spouses, to the best of my knowledge, common law couples are entitled to the same benefits on the Betterment Tax Law as married couples when it comes to dividing up property.
Adv. Shay Einat CPA is a taxation expert and former employee of the Tax Authority who owns a private law firm specializing in taxation. This article is no substitute for individual consultation.
Published by Globes [online], Israel business news - www.globes-online.com - on March 11, 2010
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