Overview

It is a common myth that financial settlements after divorce or separation are immune from tax.

There are many situations where tax considerations will likely arise in a financial settlement, especially if the settlement involves matters such as:

• Investment properties
• Shares, cryptocurrency, and other investment assets
• The family home, if the main residence exemption has been lost or is not applicable (e.g. based on land size, residence of the owner(s), etc)
• Businesses, companies, trusts, partnerships or other legal structures
• Certain superannuation interests, including self-managed superannuation funds (SMSFs)
• Third parties taking part in the settlement (e.g. a relative helping you retain the family home and taking an interest on title)
• You and/or your former partner residing overseas

Although in some cases tax cannot be avoided, the good news is that there are a number of exemptions, concessions, and tax rollovers that can apply in certain circumstances if the settlement is structured properly.

In addition, where tax is payable as part of settlement or you retain an asset that will incur taxation liabilities in the future, it may be reasonable (depending on a number of factors) to propose that payment of these liabilities be shared as part of settlement or at least taken into account when calculating the division of property. 

Make sure you obtain advice from a family lawyer and a suitably-qualified tax advisor before any settlement is agreed to or effected. Tax-relief options cannot be backdated, and so if you get it wrong you might be stuck with a tax debt that could have been reduced, avoided, or shared.

How we can help

We can work closely with your accountant, tax advisor, or other financial professional (or refer you to a professional in our network if you require) so that you understand:

• The tax consequences of your financial settlement
• The options to structure the settlement to reduce tax
• Whether actual or anticipated tax liabilities can be shared or otherwise taken into account when calculating the division of property  
• How the settlement documents need to be prepared