Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 80

ATO ruling affects assets after divorce

Individuals hold their assets in a variety of entities, such as companies, trusts or other types of arrangements. In the context of family law, divorcing spouses often funded their divorce settlements using assets held by private companies. This was because family law settlements did not attract tax in the way normal commercial transactions might.

However, on 30 July 2014 the Australian Taxation Office (ATO) issued a final public ruling making it far more difficult for spouses to use income and other property held in a private company to fund property settlements tax-free. Instead, payments made from private companies will now be considered ‘dividends’ and subject to personal income tax. Depending on the marginal tax rate of the spouse involved, a tax of up to 49% of the gross figure could be payable, reducing a divorce settlement by almost half. The difficulty applies to all couples, regardless of whether their companies have $100 or $1,000,000 worth of assets.

In addition to the increased cost of divorce, some commentators have warned that the need to fund a divorcing spouse’s tax bill could convert a 50-50 settlement into a 60-40 settlement or worse, resulting in an obvious inequity between the parties. Further, for those companies that are already struggling financially, the need to make a large payment to a divorcing spouse and also fund that spouse’s new tax bill could have dire consequences for the company’s success.

To reduce the tax liability, parties might choose an alternative way to divide their assets upon divorce. For example, it might be possible to provide the divorcing spouse with another asset, such as a property or a motor vehicle, or a spouse might be paid from a non-company entity, such as an individual or a trust, by using the company’s assets as security. Alternatively, a company restructure might enable a spouse to receive shares in the company instead. In this regard, a spouse can take advantage of the Capital Gains Tax (CGT) rollover provisions and defer any tax payable until another CGT event occurs (such as selling the asset to someone else). However, divorcing spouses must ensure that such a restructure does not contravene any of the ATO’s anti-avoidance rules.

Unfortunately, not all divorcing spouses will have these options available and in such circumstances, the extra tax liability must be considered early on and apportioned appropriately between the parties. A good understanding of the tax ramifications of any property settlement will be key to ensuring the after-tax split between the parties is not a nasty surprise. Accordingly, it will be important for divorcing spouses to receive specialist advice from experienced family lawyers and in some circumstances, accountants.

 

Sarah Hendry is a Solicitor at Foulsham & Geddes Solicitors and Attorneys. This article provides general information and does not constitute personal advice.

 


 

Leave a Comment:

RELATED ARTICLES

Consulting on the side? Don't fall into these tax traps

Are you paying tax by not starting a super pension?

Most people (and the ATO) do not know their super tax

banner

Most viewed in recent weeks

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

5 charts every retiree must see…

Retirement can be daunting for Australians facing financial uncertainty. Understand your goals, longevity challenges, inflation impacts, market risks, and components of retirement income with these crucial charts.

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

The hidden property empire of Australia’s politicians

With rising home prices and falling affordability, political leaders preach reform. But asset disclosures show many are heavily invested in property - raising doubts about whose interests housing policy really protects.

Latest Updates

Investment strategies

Why I dislike dividend stocks

If you need income then buying dividend stocks makes perfect sense. But if you don’t then it makes little sense because it’s likely to limit building real wealth. Here’s what you should do instead.

Superannuation

Meg on SMSFs: Indexation of Division 296 tax isn't enough

Labor is reviewing the $3 million super tax's most contentious aspects: lack of indexation and the tax on unrealised gains. Those fighting for change shouldn’t just settle for indexation of the threshold.

Shares

Will ASX dividends rise over the next 12 months?

Market forecasts for ASX dividend yields are at a 30-year low amid fears about the economy and the capacity for banks and resource companies to pay higher dividends. This pessimism seems overdone.

Shares

Expensive market valuations may make sense

World share markets seem toppy at first glance, though digging deeper reveals important nuances. While the top 2% of stocks are pricey, they're also growing faster, and the remaining 98% are inexpensive versus history.

Fixed interest

The end of the strong US dollar cycle

The US dollar’s overvaluation, weaker fundamentals, and crowded positioning point to further downside. Diversifying into non-US equities and emerging market debt may offer opportunities for global investors.

Investment strategies

Today’s case for floating rate notes

Market volatility and uncertainty in 2025 prompt the need for a diversified portfolio. Floating Rate Notes offer stability, income, and protection against interest rate risks, making them a valuable investment option.

Strategy

Breaking down recent footy finals by the numbers

In a first, 2025 saw AFL and NRL minor premiers both go out in straight sets. AFL data suggests the pre-finals bye is weakening the stranglehold of top-4 sides more than ever before.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.