Earlier this year the High Court of Australia ruled that the Family Courts have the power to direct the Tax Office to substitute Tax debt from one spouse to another in a property dispute.

The facts of the case involved a Wife who owed $256,078.00 to the Australian Taxation Office and a Husband who was bankrupt. The Wife had sought an order that the Husband be transferred her Tax debt. The Commissioner of Taxation was joined to the proceedings and argued that the Family Law legislation did not allow the Court to transfer Tax debt.

The Court concluded the Family Law Act does allow the Court to transfer a Taxation debt but crucially noted that they will only make such an order when it is not foreseeable that the Order would result in the debt not being paid. As such given that the Husband was bankrupt, it was foreseeable that he would not be able to pay the Wife’s Tax debt if it was transferred to him. Therefore, the Commissioner’s appeal was dismissed.

This case is important to separating couples as it highlights that all property and debt owed by parties is subject to adjustment by the Court. Even both of your Tax debts.

However, it must be stressed that the High Court spoke at length about the protections the legislation offers to creditors during property proceedings. If it becomes apparent that a sought Order by one of the separating parties will likely lead to a debt not being paid, the Order will not be made. This can also open the opportunity for that creditor to be joined to the proceedings.

Property proceedings involving bankruptcy and tax debt is a complicated area of Family Law. If you need help with your Property Settlement matter, call Accredited Specialist Family Lawyer, Kate Walker on (02) 4324 7699.