Property assets: future tax considerations

Can future tax liabilities be taken in account when reaching a property settlement with your former partner? 

What place can future tax hold in determining property assets?

Can future tax liabilities be considered in Family Law proceedings?

One of the first steps to be taken following a separation is to determine the assets and liabilities of the relationship – known as the “property pool”. Before the property pool can be distributed between the parties, the items which make up the pool must be established and valued. Attributing a value and determining the associated liability of an item is important as it allows us to work out the overall percentage of the property pool the parties will receive. This task has to be done fairly, first and foremost, so that the court can be satisfied that the division is just and equitable, but also so that each party can feel satisfied with the result and be able to move on to the next chapter in their life.

So, what about future tax liabilities?

In the matter of Rogers,1 a husband argued that the possible future tax liability of the family business (being transferred from the parties jointly, into the sole name of the husband) should be paid from the matrimonial property pool. If he were successful in his argument, the value of the property pool would be reduced by some $517,000. It is important to note that at the time of the trial, the tax liability had not issued and was anticipated only – no one could be sure what the liability would amount to if it became payable.

The Court held that liabilities that were vague or uncertain (such as future tax liabilities), could not be deducted from the property pool. In this case, as the tax liability was uncertain and could change in the future, the court found that it was not just and equitable to reduce the property pool on account of the future anticipated liability.

As seen from Rogers, we now know that future tax liabilities and other uncertain future anticipated liabilities, generally won’t be considered in a matrimonial property pool.

 

Sources:

1                  Rodgers [2016] FamCAFC 68

2              Glade-Wright, Robert (2016). “Future tax debts remain out of pool” in Proctor, Queensland Law Society, September 2016 – Vol.36 No.8.