Tax debt shifts and divorce

Complex and traumatic. Both are extreme adjectives. Yet sadly enough, they accurately describe the emotions parties to a marriage breakdown experience when trying to reach a financial settlement before the courts.
Now, this already difficult area of law has become a little more treacherous.
A recent High Court case has determined that tax debts owed by one partner can be shifted to the other during divorce proceedings.
The case in question, Commissioner of Taxation v Tomaras, considered the ATO’s objection to a debt totalling more than $250,000 being transferred from the wife to her bankrupt husband.
The ATO was effectively challenging the Family Court’s ability to compel it to substitute one spouse for the other, in relation to a tax debt.
It lost.
It is clear to see why the tax office intervened: given the new debtor is bankrupt, it has some concerns about recouping its money.
But beyond the particular circumstances of this case, the new precedent sounds a warning to anyone in a marriage where inequitable tax debt exists between the partners.
The case also demonstrates that not just tax debts, but any liability can be shifted between spouse parties so as to ensure a just and equitable property settlement. There is no doubt that decisions like this reiterate the complexities of this area of law and why you need an expert on your side.
Lee Pawlak, Paul Quinn and Nicholas Fagan form Tonkin Drysdale Partners’ Family Law team, one of the biggest and most experienced on the Central Coast.