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Family Law Perth news – Tax debts and separation

A recent High Court case has found that a tax debt of one spouse can be shifted to another during a divorce property settlement, which family lawyers say could leave the spouses with the debts of their former partner.  See the attached link to the article from ABC news on 21 January 2019 for the full family law articlehttps://www.abc.net.au/news/2019-01-21/what-is-mine-is-yours-until-taxes-do-us-part/10726020

Family law property settlement often requires expertise and experience in complex issues such as taxation, corporate and trust structures (often part of tax minimisation) – these matters can have significant consequences not only parties to a family law separation, but also related corporate or trust entities, particularly in relation to tax debts.  For an initial consultation with one of our family lawyers who have expertise in these matters book an initial consultation online here, or call us on 9221 7122 for an appointment at Holden Barlow Family Lawyers Perth. 

“It is open to a spouse, as part of their property settlement, to seek a substitution order re-allocating tax debt, if it is just and equitable to do so” Justin Dorney, Director of Holden Barlow Family Lawyers Perth.

Full details of the family law news article and case published by ABC from the attached link is as follows:

The case of Commissioner of Taxation v Tomaras concerns whether the Family Court can give orders to government agencies — in this case the ATO — as part of the determination of a property dispute.

After the breakdown of a marriage, one spouse, who had incurred a $250,000 tax debt during the marriage, sought an order from the Federal Circuit Court that her (bankrupt) partner become solely liable for the debt.

The Full Court said s90AE(1) of the Family Law Act 1975 confers power onto the court that enables it to make an order that the commissioner be directed to substitute the husband for the wife in relation to the debt owed by the wife to the commissioner.

The tax commissioner appealed to the High Court and lost. The tax man could now potentially be out of pocket by $250,000 because the husband is bankrupt.

The ATO was contacted for comment about whether it plans to pursue the tax debt but said, “due to privacy and secrecy reasons, we are unable to comment on the tax affairs of individuals or entities.

The case highlights the importance of spouses being aware that they may ultimately be responsible for another spouse’s taxation liabilities and/or penalties. 

It is open to a spouse, as part of their property settlement, to seek a substitution order re-allocating tax debt, if it is just and equitable to do so.