Sometimes a client suggest a divorce as Dutch tax advice to solve one tax matter. We instantly inquire how the partner thinks about that suggestion.
Divorce as Dutch tax advice
The moment life becomes simple, the solutions also become simple. A couple gets the tax return and the fiscal partnership results in the taxation. Sometimes the client inquires if a divorce would solve that situation. We find that dangerous territories.
Divorce implies both partners to agree
A divorce implies that the marriage is going to end. That assets are allocated based on agreement or rights to each partner. One partner explains, the divorce is done based on avoidance of taxation, the other partner could agree.
If the divorce is executed as it is normally done, there is no issue. If the divorce is done that the partner who initiated the divorce gets less than half of the assets it is also doable. The moment this is different, you need to challenge the grounds of divorce.
Our first question to both is whether this divorce is truly to avoid taxation, or is there another person involved. Of course the answer is always no, but you only know after the final signatures are placed. Our remark about a potential other lover is for many a show stopper for the divorce tax avoidance strategy.
Does a divorce as Dutch tax advice help?
People tend to plan events as if the unexpected is not involved. We divorce, then you do this, and I do that and we safe so much in taxation. First we need to learn exactly what is the saved taxation objective.
An example is double housing. A couple owns two properties in the Netherlands, and only for one property the mortgage costs can be deducted. There is a two year exception to the rule when you purchase the one property and you sell the other. If a couple keeps on deducting both properties, the penalty is that no deduction of either property is accepted.
So you divorce to be able to deduct the interest of both properties, and then? A mortgage company could have issues with such a strategy. Especially when the objective is to rent out the one property and not pay for Box 3 tax (= tax due to renting out properties). The mortgage company could disagree with the renting of the property. The tenant wants to register at the place. In the end it is clear the property is rented.
Divorce and death
Tax is a given, so is death. You plan a divorce and suddenly one of the couple dies. That you cannot plan and if you do plan, you cannot inherit anymore from that person.
In 2023 the tax free amount as tax partner due to inheritance is EUR 723.526. That is a lot. If you are no more tax partners, then the tax free amount is EUR 2.418. Plus the applicable inheritance tax rate is much higher than if you were tax partners.
Tax is exciting
We think tax is exciting. A divorce as Dutch tax advice we find silly to be frank. A marriage is much more than an economic combination. Plus the consequences of no longer being married could be much more disadvantageous than the advantage of the divorce. Hence not recommended by us as a tax strategy.