Tax traps arising from family breakdowns

The taxation outcomes of a marriage breakdown can be important and complex, but are sometimes not fully considered by the lawyers representing the parties or by the Family Court when making orders. Further, it is apparent that the existing rules are not always adequate to fully address the range of situations that arise, resulting in less than perfect outcomes. This article considers a number of tax issues that can arise in the context of property settlements. These include CGT issues involving the legal and beneficial reallocation of the party's wealth under a property settlement, transactions relating to companies or trusts, more specific trust issues, and a range of other tax issues that can arise as part of a property settlement which are not always considered, including dealings with depreciating assets and trading stock, forgiveness of debts, the future utilisation of carry-forward losses and the possible application of Div 149. Possible alternative structures are discussed.