The hidden taxes that could cost you in a break-up

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When a marriage or de facto relationship breaks down, it's never easy.

Apart from the obvious emotional challenges, separation and divorce will often result in significant financial challenges, particularly when there is real estate involved. If you're staring down the barrel of a relationship breakdown, it's best to be prepared so you don't end up in a state of tax shock.

Here are some important considerations to keep in mind when it comes to transferring property and assets following the breakdown of a relationship.

divorce property settlement tax stamp duty cgt

Do you have to pay stamp duty?

A transfer of real estate following a relationship breakdown is non-dutiable. That means no stamp duty is payable if the transfer is made solely because of the breakdown of the relationship. This is the case as long as the transfer is from:

  • one or both members of the couple to the other;
  • one or both members of the couple to a dependent child of both or either of them;
  • a trust of which the couple (or one of them) is a beneficiary to either or both members of the couple (or one of them), or to a trust of which the couple or their dependent children (or one of them) are the only beneficiary.

There are no restrictions on the type of property, so it doesn't need to be the family home for the exemption to apply. It could be an investment property or holiday home.

It also doesn't matter whether one party simply transfers the property (no money changes hands) or is paid out by the other party for their share.

This transfer process can be easily completed by the parties online, without a formal agreement.

Just be aware, where the property settlement is not finalised by a court order or financial agreement, either party can come back and make a claim on the property in future.

What about capital gains tax?

While the stamp duty scenario is reasonably easy to navigate, the question of capital gains tax (CGT) is not so straightforward.

So, we know the family home (principal place of residence) is exempt from CGT when sold or transferred, but this is not the case for investment properties in ordinary circumstances.

However, the transfer of an investment property following a separation can be eligible for CGT rollover relief where an investment property is transferred between separated partners.

This means the CGT can be deferred until if and when the property is sold to a third party in future.

But this relief or deferred CGT will only be available if the property is transferred under a court order, financial agreement or other recognised formal agreement (which meets specific conditions), so it's important to seek professional advice.

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Josephine Sergi is the head of family law at Kalus Kenny Intelex. She has more than 15 years' experience in family law both as a lawyer and paralegal. Josephine holds a Bachelor of Laws (Honours), Graduate Diploma of Legal Practice and Masters of Applied Law (Family Law). She is a member of the Law Institute of Victoria, the Family Law Section of the Law Council of Australia, Victorian Women Lawyers, the Australian Italian Lawyers Association, and ALTO - Australian-Italian Leaders of Tomorrow. She is also a contributing author of the Australian chapter of the Lexology Private Clients Guide.

Lisa Fowler is a partner in property law at Kalus Kenny Intelex. She has more than 15 years' experience in property law and primarily deals with real estate transactions and advisory. Lisa holds a Bachelor of Arts/Bachelor of Laws (Honours) and is a member of the Finance and Investment Committee of the Urban Development Institute of Australia (Victoria).