Debt of a Party to a Marriage and How it May be Transferred

The debt of a party to a marriage or de facto relationship and how to address it in a family law property settlement can be a live issue between parties in family law proceedings.

A recent decision in the High Court of Australia in Commissioner of Taxation for the Commonwealth of Australia v Tomaras & ors [2018] HCA 62  (13 December 2018) found in effect that the tax debt of a party to a marriage can be  transferred or shifted to the other spouse in connection with property settlement proceedings.

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Case Facts  

The parties had been married for a significant period, from 1992 until 2009.

During the relationship, an ATO assessment had been made against the wife in respect of income tax and Medicare levies.

The husband had been declared bankrupt in 2014 and soon after that, the wife commenced proceedings seeking final orders for the division of the parties’ property.

The Commissioner of Taxation had been given leave to intervene in the proceedings as the wife had not paid the amounts owed under the ATO assessment. The wife then south an order that her husband be substituted for herself in respect of the debt owed to the ATO.

Findings of the High Court

The High Court referred to the requirement  that a court in determining what orders it may make for the alteration of interests in property under section 79 of the Family Law Act 1975 (Cth) (“FLA”), “must take into account the effect of any proposed order on the ability of a creditor of a party to the marriage to recover the creditor’s debt (refer Section 75 (2) (ha) FLA)). There was noting in the FLA that showed any intention to differentiate between revenue authorities and other creditors. There is also power for a court exercising powers under section 79 FLA to “order that payments be made… a public authority for the benefit of a party to the marriage (Refer Section 80 (1)(f)FLA).

The term “creditor” then was said to include the Commonwealth and any other revenue authority.

The High Court found that there was power under Section 90AE(1)(b) of the FLA in proceedings under section 79 of the FLA for the court to order the ATO to substitute one party to a marriage for the other party in relation to the debt of a party to a marriage, in this case, an income tax debt owed to the Commonwealth.

Can this provision be used to avoid paying the debt of a party to a marriage?

It is unlikely that this provision can be used in this manner or even that there will be orders easily made shifting the debt of one spouse to another spouse. The reason for this is that an order under Section 90AE(1)(b) FLA shifting a debt of a party to a marriage to the other party may only be made under section 90AE(3) FLA if, amongst other things:

  1. The order is reasonably necessary or reasonably appropriate and adapted to effect a property division between the parties;
  2. It is not foreseeable at the time that the order is made that the making of the order would result in the debt of the party to the marriage not being paid in full; and
  3. The court is satisfied that it is just and equitable in all the circumstances to make the order.

The High Court said that in the case before it, it was not possible to see how the condition [referred to in item 2 above] could be satisfied given that the husband is bankrupt.

Contact our experienced Brisbane Family Lawyers or our North Brisbane family lawyers for effective advice regards debt of a party to a marriage or any area of family law. We can assist you whether regards family law property settlement, maintenance claims and parenting arrangements. Our priority is assisting you to resolve your family law issues without the need to go to court. If however court action is or becomes necessary, we have the  xperience to represent you in court.

The information set out in this blog is not a substitute for legal advice. We recommend that you obtain advice tailored to your particular circumstances from our Brisbane family lawyers or our North Brisbane family lawyers.