Tax consequences can have far reaching and expensive repercussions in family law property settlements. This is why these issues really do need to be identified as early as possible – to ensure that tactical decisions are made to either minimise, defer, or avoid triggering taxation.
In my practice, I find most lawyers are aware of the Stamp Duty and Capital Gains Taxation Rollover relief provisions, but beyond that are only able to give blanket advice that the party should seek taxation or accounting advice elsewhere. Family law is a field of law which intersects with almost every other field of law. Therefore, a good family lawyer should have a solid understanding of differing areas of law, such as Conveyancing, Estates, Trust and Equity, Contracts, Company Law and Taxation.
Tax issues are not limited to settlements involving large sums of money. They can occur in settlements with both low and high values. Some mistakes the writer has seen other practitioners make include:
Capital Gains Tax Consequences
An agreement was reached for the wife to sell shares she bought during the marriage, with the proceeds to be shared equally. The shares were sold, and proceeds divided. The wife filed her tax return only to find she had a large capital gains tax liability. She asked the husband to share the liability so they would, as the agreement suggested, share in the profits of sale equally. The husband declined to contribute. Had we acted for the wife, we would have made provision for the associated liability to be shared.
Stamp Duty Tax Consequences
Parties agreed to transfer the family home from joint names to the husband. This was documented in the orders. When presented with the conveyancing documents, it became evident that the husband was acquiring the home jointly with the daughter. The daughter was not named in the consent orders and was thus liable to pay stamp duty on her half share of the home. This could have been avoided with informed and careful drafting.
Dividend Tax Consequences
Before separation, a wife advanced herself a significant sum of money from a family-owned company and recorded it as a loan. The wife, through her lawyer, negotiated for the loan to be forgiven and orders were made. The loan was forgiven. The ATO treated the funds as a dividend and taxed the wife at the highest marginal rate – resulting in a significant and unexpected liability for the wife.
Unexpected tax consequences can turn a fair settlement into a very unfair settlement and often by the time the taxation is triggered, there is no recourse or remedy available. This is why you need the best advice to get it right the first time.
Lawyers cannot provide accounting advice but beware the lawyer who is not informed on tax consequences which may collide or impact on family law matters. A lawyer unaware of tax consequences is unlikely to refer their clients for accounting advice if they are uninformed about taxation issues.
Here at Mason Lawyers, our Director has a Masters in Corporate, Commercial and Tax Law, and works closely with our family law team to assist clients facing tax issues in their family law matters.
If you have any questions regarding financial settlements, tax, or any aspect of family law, please contact our friendly family law team today on (02) 4929 4499 or book online.
