IPTM7370 - Assignments of policies on divorce or on dissolution of civil partnership: current position
It is not uncommon for all or part of the rights under a policy or contract to change hands on divorce or dissolution, for example all or part of a jointly owned mortgage endowment policy might be transferred as part of a settlement. It may also be accompanied by a change in the lives assured.
Current view of the law
Where there is an assignment by one spouse or civil partner to the other of all or part of the rights under a life insurance policy, capital redemption policy or life annuity contract under a divorce or dissolution settlement, HMRC takes the view that the assignment is not for money or money’s worth where the court has made an order:
- formally ratifying an agreement reached by the parties that deals with the transfer of assets including the policy or contract, or
- for ancillary relief under the Matrimonial Causes Act 1973 (or financial provision under the Family Law (Scotland) Act 1985) which results in a transfer of rights under the policy or contract from one spouse to another.
This view follows from the judicial observations of Coleridge J. in G v G [2002] EWHC 1339.
A court order made in these circumstances reflects the exercise of the court of its independent statutory jurisdiction. The transfer of ownership is not therefore the consequence of one party to the proceedings surrendering their existing rights under the policy or contract in return for receiving the new transferred rights under the policy or contract.
Implications for insurers - reporting obligations
The Department for Constitutional Affairs (DCA) (now the Ministry of Justice) advised that there will be a court order for almost every divorce or dissolution involving property. This is because all the professionals involved such as family lawyers, family court judges, and the DCA itself, recommended that couples seek a court order to determine or confirm the allocation of property between them.
On the basis of this, where an insurer knows that an assignment has taken place as part of a divorce or dissolution settlement, it is reasonable to assume that it was under a court order, or ratified by one, without seeking confirmation from the assignor. It would then be entitled to assume that the assignment was not for money or money’s worth and so there was no chargeable event.
However, if the insurer is told that an assignment took place on a divorce or dissolution and also that there was no court order then the assignment would be for money’s worth and needs to be reported in the normal way.
An insurer should not assume that an assignment has taken place on a divorce or dissolution unless one of the policyholders has confirmed it.
If there is a change of life assured in connection with the transfer of a qualifying policy as part of a divorce or dissolution settlement it is likely that no surrender chargeable event will arise, provided no fee is receivable – see IPTM7340.