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Australian Lawyers and Consultants

Tax Implications of Divorce

November 2003

Although the firm of Baldwins does not handle conventional matrimonial family law issues, we are able to advise family lawyers and accountants and clients on the tax implications of proposed financial settlements between the parties to a separation or divorce. A distribution of property between parties upon marital breakdown may be made by way of:

• an order of the Family Court under the Family law Act 1975 ("the Family Law Act");
• a binding Financial Agreement under the Family Law Act;
• an agreement made between the parties themselves rather than under the Family Law Act.

Different distribution scenarios will have different tax implications and the tax issues may include:

• CGT implications on the transfer of assets (both real and personal) from one party to another, including application of CGT roll-over provisions;
• income tax implications on the transfer of assets out of a company (e.g. Division 7A) or out of a trust;
• income tax implications where the spouse owes money to the a company or trust;
• Family Trust distribution tax;
• tax treatment of maintenance payments (both spouse and child);
• splitting of superannuation;
• stamp duty exemptions where available;
• FBT if the former spouse is an employee of the company;
• GST consequences of transferring assets; and
• Potential application of the capital allowance and/or trading stock rules where the spouses were business partners.

Because tax has a major impact on any financial outcome, these tax issues cannot be overlooked in any matrimonial dispute negotiation.

For further information, contact Joe Lederman at BALDWINS, Australian Lawyers & Consultants.

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