What happens to my spouse's tax liability when we separate?

In the recent case, Commissioner of Taxation v Tomaras [2018] HCA 62, the High Court confirmed that the Court has the power to hold one party solely liable for the taxation liabilities of another party. This is a significant development in the way that taxation liabilities can be treated by the Court when determining financial settlements between separated parties.

The case places a spotlight on section 90AE of the Family Law Act 1975, being the Court’s power to make an order to bind a third party. Previously this provision has not been applied to the Commissioner of Taxation or taxation liabilities. However, on this occasion it was successfully argued that a taxation liability exceeding $200,000 be reassigned from the Wife’s name to that of the Husband.  Whilst it may be argued that the circumstances of this case are unique, it is now clear that if the Court is satisfied that such an order is reasonably necessary to effect a division of property between parties to a marriage, that the order will not result in the debt not being paid in full and that otherwise it is just and equitable, then the risk that taxation liabilities may be reassigned is now a matter that must be considered in contested financial disputes. 

If you would like to discuss this issue further please contact one of our Accredited Family Law Specialists on 9804 0035.

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