What taxes are payable after a divorce?

Whenever we think of divorce, a whole host of problems come to mind which are generally related to the emotional and sentimental aspects of the event itself. After all, it is a break-up with another person in which, in many cases, children are involved. However, it is also necessary to know how to pay certain divorce taxes and fees. Do you know what these are? Here we would like to explain in detail how much a divorce costs.

The cost of a divorce in terms of personal income tax

You may never have thought about it, but one of the most important divorce taxes is Personal Income Tax (IRPF). This is mainly due to the fact that, after the dissolution of the marriage, it is necessary to proceed to the adjudication of the corresponding share that each of the spouses possessed as a quota for the ownership of the rights, assets and obligations that were linked to the union.

However, this may not entail a loss or a gain or loss of assets since the elements linked to the marriage already belonged to each of the members of the couple. In this case, when filing the income tax return, there will be no impact on the IRPF payment.

On the other hand, if one of the two spouses sees that rights and assets are attributed to him/her for a higher value than the share that legitimately corresponds to him/her, there is an alteration of assets that will generate, depending on the case, a loss or a capital gain. In this case, the law obliges the taxpayer to include these changes in the personal income tax return.

Divorce taxes related to alimony

Either by agreement between the parties or by court decision, after the dissolution of the marriage, it is possible that one of the two parties may be entitled to receive a compensatory pension from the other. In this respect, a distinction must be made between the recipient and the payer:

1. The recipient. The sums received as part of the established compensatory pension must be recorded as income from employment and are therefore automatically included in his or her general income tax base. Therefore, they are not subject to personal income tax withholdings.

2. The payer. The amounts contributed and paid to the recipient as a compensatory pension can be reduced from the IRPF taxable base as long as this is done within the limits set by the regulatory agreement and the court ruling in force. Therefore, the payer can, in most cases, enjoy a tax benefit. Furthermore, it should be clarified that the reduced amount will be limited to the remainder of the taxable base, on the assumption that under no circumstances can it be a negative amount. For his part, the payer can also ask his company to take into account the amount paid as compensatory pension when calculating the IRPF withholding from his salary by means of form 145.

IRPF associated with alimony

As in the case of alimony, the law establishes a series of parameters regarding the payment of the IRFP for both the recipient and the payer. Let us take a look at them:

1. The recipient. The recipients are, in the vast majority of cases, the children of the payer of the maintenance allowance. Since it is exempt income as long as it is received as dictated by an amicable divorce settlement or divorce decree, it is not subject to personal income tax withholding. However, when the recipients are family members who are not children of the payer, such alimony is considered as income from employment not subject to withholding tax.

2. The payer. The spouse obliged to pay maintenance cannot reduce his or her IRPF taxable income in this respect.

The cost of a divorce: the Transfer Tax (Impuesto sobre Transmisiones Patrimoniales Onerosas)

The payment of the Transfer Tax (Impuesto sobre Transmisiones Patrimoniales Onerosas, ITPO) is compulsory in certain cases. In fact, it will depend, fundamentally, on the economic regime to which the previously existing marital union was subject and if there are assets owned by both parties.

Separation of property regime

It is becoming increasingly common for marriages to be established under the separation of property regime at the time of their formation. In this respect, it is only possible, in the vast majority of cases, to avoid the payment of the ITPO when the distribution of the common property is carried out in an equitable manner.

In such cases, when the award of such assets is made by public deed, the exemption from payment cannot be applied to the stamp duty (Stamp Duty, IAJD). It must be assumed that this tax ranges between 1 % and 1.5 % of the declared value.

However, when one of the spouses submits an over-allocation, the relevant offsets that occur are compulsorily subject to the taxation of the ITPO.

The community property regime

It is established, as a general rule, that the awards of assets and rights to both spouses, once the marital union has been dissolved, are exempt from the payment of both the ITPO and the IAJD.

To be clearer, we must say that this distribution is carried out through the formation of lots. In the event that these have the same economic value, the operation is totally exempt from the payment of any of these taxes.

However, if prior to the formation of the lots there are assets considered indivisible or that, in case of being divided, a reduction in their value is foreseeable, the excesses in the award to any of the spouses will only be exempt from the payment of the ITPO and the IAJD in the event that there is a compensation in cash.

If there is no such compensation in cash, the competent bodies will understand that it is a donation and, therefore, it must be taxed under Inheritance and Gift Tax (ISD). On the other hand, if in order to carry out such compensation, the award of private property is carried out, the payment of the ITPO will be obligatory.

The Municipal Tax on the Increase in the Value of Urban Land

This is the last tax affecting the cost of a divorce that we want to talk about. Specifically, it will not have to be paid to the competent municipal entity in the event that the transfer of real estate that formed part of the marriage is transferred in favour of the children or between the spouses if it is carried out on the basis of the separation, divorce or annulment sentence issued by a judge and regardless of the economic regime to which the union was subject. In any other case, yes.

As you will have seen, divorce is also a complicated process in tax and fiscal matters. Depending on the regimes, agreements, judgements and transfers, you may have to pay certain taxes. Therefore, our advice is that, before facing such a complicated process, you should always put yourself in the hands of professional divorce lawyers who will analyse your case and advise you accordingly.