Capital Gains Tax and Family Law

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When some couples separate and enter into a final property settlement, they may have to consider any potential Capital Gains Tax (CGT) implications. It is really important to ensure that when negotiating and formalising a property settlement with your former partner you are aware of any potential CGT issues and obtain the relevant advice in relation to these issues.

What is CGT?

CGT is a federal tax that is payable on the profit of the “capital gain” that a person makes on an asset, generally by virtue of the increase in the value of the asset during the time in which it was held. For example, common instances in family law where CGT may be triggered are in relation to the sale of an investment property, the sale of shares and the sale of cryptocurrency.

If a couple purchases a property early on in their relationship which is ultimately utilised as an investment property and later, the couple agrees as part of their final property settlement to sell the investment property, if there has been an increase in the value of the property since it was purchased, this would trigger a CGT liability. Alternatively, if a couple agrees as part of their final property settlement for one of the parties to retain an investment property, they may be eligible for a CGT rollover.

CGT Rollover

As indicated above, a common scenario dealt with in family law is a situation in which a couple agrees for one party to retain an asset, such as an investment property or shares. If an asset is transferred from one party to the other in accordance with Orders sealed by the Court or a Binding Financial Agreement, such transfer will usually qualify for a CGT rollover.

In short, this means that a CGT liability is not triggered at this time upon the transfer of the asset, however, if and when the person who is retaining the asset ultimately sells the asset at some point in the future, only then will the CGT liability be triggered. In this situation, CGT will be calculated as though the person who had retained the asset owned it from the time that it was originally acquired.

Importantly, this CGT rollover will not occur in the absence of sealed Court Orders or a Binding Financial Agreement and as such, if an agreement has been reached for one party to retain an asset such as this, the agreement must be documented in the appropriate way to be eligible for the CGT rollover.

Former Matrimonial Home

There are some assets that are exempt from CGT regardless of whether it is sold or transferred as part of a final property settlement. One example of this is the former matrimonial home in which a couple lived. However, the exception to this exemption is if there was a period of time in which the former matrimonial home was not utilised as the main residence of the parties, such as if the property was rented out as an investment property for a period of time. In this circumstance, the CGT liability will apply only to the period of time in which the property was not utilised as the primary place of residence.

If you require assistance with your family law matter, please do not hesitate to contact a member of our Family Law Team.

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Child Support, what is it and how does it work?

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One very important consideration in a family law matter in which a couple has children is what child support arrangements are going to be put in place in relation to the costs of the children moving forward. There are 3 main ways to document a child support agreement, set out as follows:

  1. an ad hoc arrangement agreed between the parties;
  2. a Child Support Assessment issued by the Child Support Agency; and/or
  3. a Binding Child Support Agreement.
Ad hoc agreement

Some parties are able to reach an agreement in relation to child support amongst themselves, which may involve one party paying the other party a set amount per week. Often, an ad hoc agreement is a verbal agreement between the parties and not formally documented in any way.

Whilst ad hoc arrangements are often suitable for very amicable couples, the risk associated with an ad hoc agreement is that there is nothing binding the paying party to continue paying child support in accordance with the agreement moving forward. In the event that the paying party were to cease making payments in accordance with the ad hoc agreement, the receiving party would have no recourse to compel the paying party to continue paying in accordance with the agreement. It is for this reason that ad hoc agreements in relation to child support are not recommended.

Child Support Assessment

A Child Support Assessment is issued by the Child Support Agency and is determined using a specific formula that addresses a number of variables. These variables include the number of children and each of their ages, the annual income of each party and the number of nights the children are in each party’s care.

If one party applies for a Child Support Assessment from the Child Support Agency, the Agency will issue an assessment which the paying party will be liable to comply with. Child Support Assessments vary if any of the above-mentioned variables change. For example, as the children grow older and specifically, once children turn the age of 13, the Child Support Agency will likely increase the assessment in circumstances where the cost of children increases as they grow older. Alternatively, in the event that either party’s income changes or the care arrangements for the children change, the Child Support Assessment will alter to reflect these new arrangements.

The benefit of a Child Support Assessment is that they are a legal obligation and the Child Support Agency will chase the payer in the event that they cease making payments in accordance with the assessment. However, in circumstances where child support assessments are dependent upon the above-mentioned variables, a Child Support Assessment amount can change quite regularly in the event that there are changes in care arrangements or income.

Binding Child Support Agreement

The final way that parties may agree to document a child support agreement is by way of a Binding Child Support Agreement. Binding Child Support Agreements set out both periodic amounts (ie weekly, fortnightly, monthly etc.) as well as non-periodic expenses that arise sporadically throughout the year (such as school fees and expenses, private health cover, extra-curricular costs, gap medical costs etc). Similar to an Assessment, Binding Child Support Agreements impose a legal obligation upon the parties to pay child support in accordance with the Agreement.

Unlike Child Support Assessments, Binding Child Support Agreements once entered into are binding and not variable. As such, obligations in accordance with Binding Child Support Agreements do not alter in the event of change in circumstances such as reduction or increase of income, change of care arrangements etc (unless a clause is included to specifically provide for such change in the agreement). The parties can expect to be bound by a Binding Child Support Agreement until the children reach the age of 18 years or finish their high school education (whichever is later), unless agreement is reached to alter the Binding Child Support Agreement prior.

If you require assistance with your family law matter, please not hesitate to contact a member of our Family Law Team.

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Failure to Repair and Maintain Common Property in Strata

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The recent NSW Court of Appeal Decision of The Owners – Strata Plan No. 74232 v Tezel [2023] NSWCA 35 (“Tezel”) determined that the two-year limitation period imposed by section 106(6) of the Strata Schemes Management Act 2015 (“SSMA”) begins from the time at which the owner was first aware of the type of loss that is the subject of the complaint…

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Preparing for your first meeting with a family lawyer

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We understand that your first meeting with a family lawyer can seem very daunting, especially during a challenging and emotional time. However, taking that first step to schedule this meeting will ensure you are able to obtain clear and tailored advice as to your rights, obligations and the various pathways available to you in order to reach a fair outcome.

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What Happens to Your Digital Assets When You Die?

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You may have heard of using a Will to protect your physical assets when you pass away, but what about your digital assets? Understanding which digital assets you have ownership of may assist your friends and family with accessing them on your death. Read on to find out more…

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How can I ensure my pets are looked after when I die?

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As Australia has one of the highest rates of pet ownership you should consider the likelihood of your pet outliving you in your will…

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Company Constitution

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When establishing a business, it is important to consider how you would like your business’s external and internal affairs to be managed. The Australian Securities and Investment Commission (ASIC) requires a company’s internal management to be governed by either a company constitution or by the replaceable rules under section 141 of the Corporations Act 2001 (Cth). Read more in our latest blog…

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A gift or a loan? Financial assistance from the ‘The Bank of Mum and Dad’

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With increasing financial burdens on the cost of living, it is not uncommon for individuals to seek financial assistance from relatives. Many individuals may turn to the ‘Bank of Mum and Dad’ for money to assist in the purchase of a property, vehicle, or other asset. Read more about what you need to consider in this scenario.

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Conditional Gifts in Wills Part 3 – The Ultimate Gift

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Conditional Gifts Part 3 – The Ultimate Gift discusses what a condition precedent is and the importance of considering the conditions…

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Conditional Gifts in Wills Part 2 – The Bachelor

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When a person receives a gift under a Will, but they are only entitled to receive it under particular circumstances, this is called a conditional gift. This blog takes a look at the conditional gifts in relation to the Hollywood movie The Batchelor.

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