Maintenance via dividend payments

Maintenance via dividend payments

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I have a husband and wife co owned jointly for many years.

They are now getting divorced, currently separated. Husband does most of the work, wife is the main carer for the children. Its a small service company, no employees, goodwill largely personal to the husband. 

One idea being mooted is for the ownership to continue and the wife receive ongoing dividends from the company so as to use up her basic rate personal allowance instead of a full maintenance payment. 

I am concerned this would then be caught by the settlements legislation, and so the income be assessed on the husband, ie the shares may as well be passed over in full or simply start a new co. 

Anyone been along this route before?

Replies (6)

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By johngroganjga
10th Jun 2013 17:29

Who is mooting it?  The

Who is mooting it?  The solicitors acting for the parties in their divorce or someone else?

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By Captainblack
10th Jun 2013 17:41

Dangerous Ground

I think you are treading on some very dangerous ground here. Your clients need some legal advice here, pronto!

Captain

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By ireallyshouldknowthisbut
10th Jun 2013 17:50

.

The wife.

I should point out we are trying to get to a working agreement between the pair of them before getting the solicitors too involved. They are very much trying to work together to max the pot of cash available to share between them.

I am trying to stick to the tax angles and not get dragged into the rest, albeit it is fairly amicable.

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By johngroganjga
11th Jun 2013 08:33

You need to be very careful to avoid a conflict of interest if you are working with both of them and they are not being independently advised.  For example if you advise the wife to give up a claim for court ordered maintenance in exchange for a promise of future dividends from the company you are likely to be sued to kingdom come.

It is not uncommon for maintenance orders to provide that the party paying the maintenance has liberty to arrange for the recipient to receive payments as company dividends or whatever and that the net of tax sums received under that guise are to be a good discharge, pound for pound, of the maintenance obligation.  An arrangement of that kind gives the husband in your case liberty to pay maintenance via dividends if he wishes to do so, which he may if it is tax efficient.  However, crucially from the wife's point of view, the maintenance obligation is not dependent on the tax efficiency of the dividend arrangements and would survive an abandonment of those arrangements and indeed the demise of the company.

Your concern about the settlement implications is real, but frankly it seems to be the least of your problems.  Perhaps you should focus on helping the parties to agree the division of assets and the quantum and duration of any on-going maintenance obligations.  As I am sure you know they will need a consent order to make it all binding.  When the quantum of the maintenance is agreed you can advise the husband on the most tax efficient method of paying it.

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By ireallyshouldknowthisbut
11th Jun 2013 09:33

John,

Thanks for your thoughts. 

The way I see it they are both directors and co-owners so I need to act for both of them equally with regards to the company and am being scrupulous in my sending identical emails and letters to both of them in this period pointing out any options or decisions. 

I am not getting involved in the overall division of assets, or the size of the maintenance, my  role is to advise on the tax effect of the "what ifs" ie the closure of the company which the husband can do at any time and start a new co,  the transfer of shares, or as proposed here potentially maintaining the joint ownership in the longer term.

Regards

 

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By johngroganjga
11th Jun 2013 12:20

Good to hear that you are steering clear of the main area of risk for you.  Even so, every time I sent them a joint Email I would be including in it a sentence saying that I was only providing information not advice, and that they should each consider taking advice separately elsewhere.

 

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