There’s a saying in family law – there’s not two, but three certainties in life: divorce, death and taxes. A recent High Court decision however has shed some doubt on the latter when the former is involved (so far as tax responsibility goes).
A woman has successfully substituted her bankrupt ex-husband to be liable for her debts to the Australian Tax Office. The couple in question were married for 17 years. During their marriage the wife accrued a significant tax debt (to the tune of $250,000). 5 years after their marriage ended, the husband declared bankruptcy. Not long after, the wife commenced proceedings in the Federal Circuit Court seeking to substitute the husband for herself as the debtor.
It is not uncommon for debts accrued by one or both parties to a marriage or de facto relationship to form part of the property pool. These debts will often be repaid out of the final property settlement or somehow taken into account when working out the net position of each party and what each party will retain.
In this case, the wife was successful in obtaining the property orders that she sought. The High Court has ruled that section 90AE(1) of the Family Law Act 1975 confers power onto the Federal Circuit Court to make such orders to substitute tax liability onto the other party, and is binding on the Crown (in this case the Commissioner of Taxation). Of course, for the court to make such an order they must be satisfied that it is just and equitable in all the circumstances to do so.
The above case had unique circumstances and the outcome was quite unique but it flags the point that just because a debt is not in your name, does not mean you will not have responsibility for it (or, as the case shows, be deemed to be solely responsible for it).
Getting advice early about how family law may impact your rights and entitlements is vital and you should seek advice from a family law specialist. Get in contact with our family law specialists to discuss your options.