Draft ruling on tax implications of property settlement transfers

As is oft the case I am a little late in catching up with my Proctor reading.

On reading the May edition I came across an article by Chris Nyst and Rohan McAdam alerting us to a new draft ruling of the ATO foreshadowing "a significant change in the way it will assess for taxation purposes, the distribution of joint matrimonial property pursuant to property proceedings under section 79 of the Family Law Act 1975."

The Family Court can and often does order a private company ( or individual party to the proceedings to cause the private company ) to pay money or transfer property to another party to the proceedings. Currently section 109J of the ITAA exempts such distributions for income tax assessment purposes, but according to Nyst and McAdam, under the new draft ruling, when money or property is paid by a private company or a party to the matrimonial proceedings, or transferred to a shareholder, the payment will be deemed to be an ordinary dividend , assessable as income of the shareholder under section 44 of the ITAA.

Just another reason to bring the accountants in on the terms of settlement to avoid a law claim at a later stage.

The Circle of Care

"Family lawyers want to provide a holistic service to their clients that help them not only get through a divorce and settlement but prepare them for their new circumstances.Some lawyers have referred to this as providing a "circle of care ".  Within the circle of care, there are professionals that can help with the transition to the next stage of life.It comprises their lawyer, who can deal with the legal ramifications of a divorce, but because of the trusted relationship is also able to refer them to psychologists and counsellors, to provide assistance for emotional issues. Their lawyer may then refer them to a new accountant, particularly if their former partner, because of the conflict of interest that might arise, is still using the previous one. Family lawyers recognise that there is need for broad planning advice that can then be drilled down to specific strategies early in the process, they may want to recommend that their clients meet with a financial adviser."

Collins Mann October 2010

Risks in lodging a Caveat.

The dangers of lodging a caveat to protect a purported interest in property are illustrated by the decision of Forrest J in Auricchio & Auricchio [2014] FamCA 240.

In applying Queensland State Law pursuant to the accrued federal jurisdiction of the Family Court, His Honour ordered that the wife forthwith take all necessary steps to cause the Queensland Registrar of Titles to remove the caveat from the title to the subject property and reserved the husband's costs.

The Court held  that the wife had not discharged the necessary evidentiary onus on her to uphold the caveat on the title.

Worth a look if you are contemplating placing a caveat on title to protect a client's interest.

Special Contributions to Property

For an interesting and recent discussion of the notion of "special contributions" see the Full Court decision of Hoffman & Hoffman [2014] FamCAFC 92.

FM Brewster as he then was ordered an equal division of property in a pool of about $10m after the parties' 36 year cohabitation.

In so doing, His Honour declined to accept any principle of special contributions.

The husband had asserted that his special skills and entrepreneurial flair were instrumental in the parties having the property they did at trial.

In dismissing the appeal the Full Court bench of Faulks DCJ, Murphy J and Watts J rejected the notion that there was a binding principle of law relating to "special contributions" or that there was any legitimate guideline in respect of such contributions.

Further that the nature of the category of contributions asserted by the husband was not of itself relevant but must be considered as with all other contributions made by each of the parties.

The Full Court held that "Read as a whole his Honour's reasons reflect a proper consideration of all matters relevant to the exercise of his Honour's wide discretion insofar as it specifically relates to contributions ".