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.

 

  •   19 September 2014
  •      
  •   

 

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

How cutting the CGT discount could help rebalance housing market

A more rational taxation system that supports home ownership but discourages asset speculation could provide greater financial support to first home buyers.

3 ways to fix Australia’s affordability crisis

Our cost-of-living pressures go beyond the RBA: surging house prices, excessive migration, and expanding government programs, including the NDIS, are fuelling inflation, demanding bold, structural solutions.

Is there a better way to reform the CGT discount?

The capital gains tax discount is under review, but debate should go beyond its size. Its original purpose, design flaws and distortions suggest Australia could adopt a better, more targeted approach.

Want your loved ones to inherit your super? You can’t afford to skip this one step

One in five Australians die before retirement and most have not set up their super properly so their loved ones can benefit from all their hard work and savings. 

Welcome to Firstlinks Edition 648 with weekend update

This is my last edition as Editor of Firstlinks. I’m moving onto a new role though the newsletter will remain in good hands until my permanent replacement is found.

  • 5 February 2026

Super is catching up, but ageing is a triple-threat

An ageing Australia is shifting the superannuation system’s focus from accumulation to the lifecycle of retirement. While these pressures have been anticipated for decades, they are now converging at scale and driving widespread industry change.

Latest Updates

Economy

Has Australia wasted the last 30 years?

The 20 years after Peter Costello left Treasury have been deemed wasted...by Peter Costello. The missed opportunities for Australia began long before.  

Retirement

Navigating the next stage of life in retirement

Retirement planning is more than just saving enough money. Long-term care needs, housing choices, and social networks are just as critical for a happy and enjoyable life.

Strategy

Showcasing your value in the age of AI shortcuts

Knowledge is becoming commoditized in the age of artificial intelligence but experience, taste, and judgement are still at a premium.

Planning

Financial advice as the pathway to economic security

Financial advice can lead to improved financial literacy, a healthier super balance and a higher standard of living in retirement. Is now the time to give yourself the gift of financial advice?

Economy

The overlooked driver of energy inflation

The impact of energy policy on inflation in Australia is often overlooked. Transitioning to renewable energy can lead to inflated costs that affect the entire economy and productivity growth.

Economy

A 2026 rotation story: Europe’s undervalued small caps

In 2026, Europe is poised for a 'Goldilocks' scenario with cooling inflation and lower rates, driven by fiscal stimulus. Small caps offer an attractive entry point before capital rotation.

Investment strategies

What we do when things go up (a lot)

Recent price spikes, particularly gold's surge, trigger behavioral responses like availability bias, storytelling, extrapolation, and FOMO, which create self-reinforcing feedback loops influencing investor sentiment and market trends.

Sponsors

Alliances

© 2026 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.