The statistics are unfortunately alarming. A large percentage of marriages, especially between spouses of different nationalities, ends in separation or divorce in Switzerland. This has far-reaching emotional and financial consequences. Here we deal with some of the main taxation aspects you need to bear in mind when in these circumstances.
Taxation during marriage
Married couples living together in a joint common household are taxed together and must file only one tax return covering their overall income and wealth. This applies independently of the matrimonial property regime.
The income and wealth of minor children are also included in the tax return for the family unit, except if the minor child receives income from employment, which would then need to be declared in a separate return. Broadly, children up to 18 years old are considered minors.
Similar rules apply to those in registered civil partnerships.
What happens during separation
When couples separate, there is a discontinuation of the “joint common household” and accordingly each spouse will be taxed separately for the whole tax year and not from the point of break up.
The separate taxation starts from the beginning of the year of separation, which normally precedes divorce by some months to several years.
Main financial issues during a divorce
Division of assets
The transfer of assets to the other spouse during divorce is tax free.
Depending on the asset type, they may still produce taxable income after divorce, besides there is the wealth tax aspects to consider.
You also should note that some assets produce real income and others produce deemed income. For example, shares in companies that pay dividends represent real income. Real estate that is for own use would generate a deemed rental income, whilst if rented out would generate real rental income. Both types of income are taxable.
Splitting of pension
The deficits created in pension funds by the splitting provisions can be compensated by making additional voluntary contributions. These must adhere to the pension fund’s regulations and are a tax-efficient way to save money for retirement as they provide relief at marginal rates in the year of payment.
Non-employed spouses receiving a share of the pension savings need to have these deposited in a vested benefits account or insurance policy.
The spouse who pays alimony can deduct this in full on their tax return. Correspondingly, this is a taxable income for the ex-spouse receiving it.
How separation may affect your tax burden
Single individuals pay taxes based on their own personal income, while married couples pay taxes based on the combined income.
As a general guide, if both spouses had a reasonable level of income prior to separation, they can expect lower taxes after it because only one spouse’s income will be used to determine the tax bracket, rather than the combined income.
If only one spouse worked, or if both worked but one spouse earned a low income, there would be an increased tax bill on the higher earner as there would no longer be the spouse’s low income to balance the higher income. On the other hand, the lower earner spouse would see a reduction in the amount of taxes after separation.
Since the rules vary according to the canton of residence, it is important that these are observed and specific guidance obtained to determine the correct tax liability.
Couples with minor children and the tax liability in the break up year
Couples in a family with minor children are subject to a lower family tax rate. When the family unit ends, the spouse with the custody of the children continues to have this lower tax rate applied, while the other spouse has to apply the tax rates applicable to singles without children, which are higher.
Significant tax differences can therefore arise in the breakup year, especially when the breakup takes place in the second half of the year. In this scenario, the higher earning spouse would pay alimony from the break up month but would be taxable on the income for the whole year and subject to the higher tax rate.
If you have any questions, please contact us. Our team comprises of specialists with many years of experience in the field of taxation. They will be able to assist you on a strictly confidential basis.
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.