What happens to my spouse's shares in our company if we separate or divorce?

Shares you gave your spouse belong to them, so they count as an asset in any financial settlement and you cannot take them back just because the marriage has ended. Moving shares between you does not normally trigger Capital Gains Tax if it happens before the end of the third tax year after the one in which you stop living together, or at any time if it is done under a formal divorce agreement or court order.

The shares are theirs

When you give your spouse shares so that dividends are taxed on them, the gift has to be outright. That is what makes the tax planning work. It also means the shares are your spouse's, and they are counted as an asset in any financial settlement if the marriage ends. We are accountants, not family lawyers, so the legal outcome is for a solicitor. The tax position is something we can set out.

Do not add a way back

HMRC's rule is that a gift is not outright if it is subject to conditions or if the shares can become payable to the giver. A clause that makes your spouse hand the shares back on divorce looks like exactly that. If you want that protection, take advice on how to get it without losing the tax treatment.

The Capital Gains Tax window

Transfers between spouses and civil partners who live together are made at no gain and no loss. The receiving spouse takes over the original cost, so any gain waits until they sell.

• After you stop living together, the treatment continues until the end of the third tax year after the one in which you separated.
• If a court grants a divorce, annulment or dissolution earlier, the window closes at that point.
• A transfer made under a formal divorce or separation agreement, or under a court order, has no time limit.

Miss the window and the transfer is treated as a sale at market value, which can mean a gain on shares that have grown with the business.

Dividends while you separate

For as long as your spouse holds shares in the same class as yours, dividends go out in proportion. You cannot take a dividend and leave them out. Using a waiver or a different class to do so raises the problems covered in our pages on dividend waivers and alphabet shares. In practice the cleanest solution is to agree how the shares will be bought out or transferred, and what happens to dividends in the meantime, in writing.

Practical points

• Get the shares valued independently. A figure agreed on a rough guess is hard to unpick later.
• Check the articles and any shareholders' agreement for rules on transfers.
• Update Companies House for any change of director or significant control.
• Do the tax calculation before the settlement is agreed, not after.

Sources: HMRC helpsheet HS281: Capital Gains Tax, civil partners and spouses · HMRC manual TSEM4205: outright gifts between spouses