Separating couples may face tax consequences

Couples who separate or divorce could face unforeseen tax consequences that reduce the pool of assets available to both parties.

These issues were raised by Centric Wealth financial adviser Donal Griffin, who noted that separating couples often use capital gains tax (CGT) rollover relief to defer the tax payable on assets from a settlement. However, distributing the assets could bring an associated contingent tax liability that could cut into their value.

“The negotiation of the options in a property settlement is not for every couple, as some will want a quick and simple separation agreement. But for those who are prepared to negotiate and have the resources to allow for such a discussion, it can be very worthwhile for all parties,” said Griffin.

“The CGT rollover relief that may be available in some cases includes traps for young players.”

Griffin also said that spouses needed to think about where their main residence would be for tax purposes, should they move out of the family home.

“For couples with investments owned by trusts or companies that need to be sold or divided up, tax liabilities may work to reduce the value of their assets and the net worth of the parties. For example, if one spouse takes a car that is owned by a family company, the transfer of ownership is considered a taxable dividend, albeit possibly frankable,” he said.

Spouses also need to decide how they would handle superannuation funds that were included in a settlement to ensure they do not pay tax on their funds.

“A financial planner is ideally positioned to help make decisions with regard to this future planning,” said Griffin.