DESPITE the effort to introduce a rational taxation code to deal with divorce, the rules that relate to the breakdown of marriage and to divorce remain complex.

The relationship between a man and a woman can be categorised in a number of ways including living, together while unmarried, married, informally but permanently separated, formally and permanently, separated, or divorced.

Changes in the relationships have implications for tax liabilities of the individuals involved.

A couple living together outside of marriage have no special position for the purpose of income tax. They are taxed as single people.

Once they marry they have a choice of taxation treatments, which range from continuing to be treated as single persons, through to where one of the two spouses is liable for the tax of both, but the tax is calculated by granting that spouse twice the amount of allowances that would be available to a single person and twice the income tax rate bands of a single person.

Where two spouses would not pay tax at the same marginal rate if they were treated as single persons, they would usually achieve a tax reduction by electing for one of a number of forms of joint assessment, for example, assessment as married persons.

If the marriage breaks up and the couple separate permanently, their income tax status reverts to that of single persons. There is one remaining benefit of the marriage, in that the spouse who is maintaining the other spouse will continue to receive the married allowance, but not the married rate band.

The spouse making the maintenance payments does not receive tax relief for the payments nor does the recipient spouse suffer tax upon them. This harsh treatment of the informally but permanently separated couple may actually push the couple to being formally separated.

Where the separation is formal - a separation by a deed of separation or a judicial separation granted by the courts - the couple can either elect to be taxed as if they were still married and living together. In that case no tax relief is available for the maintenance payments but the spouse who is liable for the couple's tax receives married allowances and married rate bands.

Alternatively, they may elect to be taxed as single persons. In the latter case the spouse paying the maintenance receives tax relief for those payments, and the spouse in receipt of the maintenance is liable to tax upon it.

If a couple divorce they are thereafter taxed as single persons. Maintenance paid on foot of a court order arising from the divorce results in tax relief for the spouse who pays it, and is treated as taxable income in the hands of the spouse who receives it.

Divorced persons may not elect to be taxed as a married couple living together, although separated but non divorced persons may. But the treatment of informally separated couples where one spouse has elected out of joint assessment can result in there being a tax advantage in the separation being formalised.

There are no capital gains tax advantages for a couple living together who are unmarried. They are treated as any other two strangers would be. A married couple who has not permanently separated can transfer assets between each other without incurring any charge to capital gains tax.

The position changes radically if the couple permanently ceases to live together as man and wife, whether separated formally or informally. The exemption from capital gains tax on transfers of assets between them is available only on transfers on foot of a court separation order or on foot of a deed of separation.

Despite this, transfers between them are treated as being for a consideration equal to the open market value of the asset being transferred, even if a lesser price, or no price, is paid.

If the couple is divorced, any transfer of assets arising from a court order on the divorce is exempt from capital gains tax. However, other transfers of assets between the couple, which are not on foot of the court order, do not attract a CGT exemption.

Where a permanently separated couple wish to transfer an asset between themselves, and a substantial capital gain would crystallise on the transfer, they may find that the only way to carry through the transaction without a tax liability is to seek a formal separation or a divorce.

A couple living together, but not married, are treated as strangers for stamp duty purposes - no particular reliefs apply. Where a married couple transfer assets between each other, they are exempt from stamp duty. This is so whether they are living together, or separated.

A stamp duty exemption also applies in relation to any assets passing between them by reason of a court order on the occasion of their divorce. However, if one party wishes to transfer an asset to a former spouse, following the divorce, and not on foot of the court order, full stamp duty will apply.

Persons living together but not married are treated as strangers for the purposes of gift tax and inheritance tax - capital acquisitions tax. Once they marry, however, any transfers of assets between them is exempt from these taxes, even if they subsequently separate, whether formally or informally.

If they divorce, any transfer of assets on foot of the court order arising from the divorce is also free of gift tax and of inheritance tax. However, any transfer of assets between the former spouses after the divorce, otherwise than on foot of the court order, is subject to gift tax or inheritance tax, as the case may be, as if the couple were strangers.

Some ex-spouses may wish to make further provision for a former spouse if economic circumstances change after the divorce. Such pro vision could carry a heavy capital acquisitions tax liability.

The basic problem with the taxation provisions made for divorce is that they treat a couple as total strangers after the divorce, and confine the reliefs normally available to married persons to those transfers of assets which arise directly from the court order on the occasion of the divorce.

This approach ignores the fact that the sundered couple may have many years of life ahead, and that the relationship between them, although it may have changed, may have not been totally severed and they may wish to make provision for each other on an occasional basis, as circumstances demand, or permit.

The taxation provisions relating to married and separated persons are poorly thought out and contain unnecessary traps for the unwary. There are many other minor taxes which may be affected by the marital status of a taxpayer. There are also many exceptions, transitional provisions, and conditions to be met, which qualify the comments made above. Detailing these would only obscure the broad picture.