When we think of divorce we almost always assume that both husband and wife don’t get along and therefore decide to call it quits. But that assumption may sometimes be wrong in China. Many couples, who are still very much in love with each other decide to call it quits for a totally different reason that has nothing to do with love or compatibility. Instead, it has to do with a new capital gains tax that was announced at the beginning of March. Sound confusing? Let’s explain.

On March 1, 2013 the central government, without notice, announced measures designed to further control housing prices. These measures particularly focus on the speculative investor and call for an increased down payment and a higher interest rate for second homes. This new law also includes the enforcement of an existing law that levied a 20% capital gains tax on previously occupied housing. Previously, home owners could choose between paying the capital gains tax or by otherwise paying 1% to 2% of the sales price, which was generally more favorable.

This brings us to the reason for the divorce. Many couples have one partner who already owns a residence, but they desire to buy another more suitable residence in which they can raise their family. In other circumstances, the couple may have one of their parents live in their existing dwelling while they purchase a new residence. In either case, if they bought this second residence it would be considered a second house and the tax would apply. Therefore, couples divorce, purchase the property in the other partner’s name, and then remarry. Since the newly purchased property is considered the individual’s first, the capital gains tax isn’t applicable.

If you believe this is done by only a few, think again! Couples are actually informed of the divorce process by the bank. And, not only is the bank cooperative, but so is the divorce office staff telling the couple not to put the reason for divorce as the new property law, but to choose another reason to place in their documentation.

According to Shanghai Daily, divorces have increased 400% in some divorce registry offices following the tax announcement. Nanjing experienced an increase of 200%.

China has always marched to a different drummer. This is just another example of that different drum beat.

Alan Refkin

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