Insights and inspiration
Husband and Wife and the Taxman Makes Three
11 May 2015
In most cases, when you start a relationship there are just the two of you. However at the end of the relationship, it is not unusual for there to be quite a few others wanting a seat at the table. They could be parents wanting loans repaid, banks likewise, and by no means infrequently, the taxman.
The taxman featured in a recent case in Melbourne. When the marriage between the medical specialist and his partner ended, they were unable to agree about the division of property of childrewn either, and the case ended up in court. This article is about only the financial aspect.
At the time the case came to trial, the judge found that the parties owed more money than they had property. Part of the debt was the husband's tax liability for almost half a million dollars. The question for the judge was whether this was something that the husband and the wife should be responsible for, or whether the husband alone should wear it. If the husband alone wore it, then the wife might get something but otherwise, as their debts exceeded their assets, clearly there was nothing to share.
The judge's task in working out the truth about the tax liability was not helped by the fact that the husband had failed to lodge tax returns on time. The judge had to work out what the tax debt was at separation, and how it grew so much after separation. In short, what the judge found was that the husband had post separation had the means to pay the tax debt but made a conscious choice not to pay it. He refused to sell properties, thereby ensuring that debt remained that was not being serviced. He decreased his income but apparently increased his expenses so it appeared as though he could not meet his debts.
The judge therefore had reasonable grounds to assume that he was not being told the full truth, and allocated the whole of the tax debt to the husband, leaving something for the wife after all.
But there was an even further sting in the tail for the husband because the judge left their respective super interests as they stood, which meant that the wife kept super of $350,000 and the husband $180,000 approximately. This was justified on the basis that even if the husband got some of the wife's super, the husband would still remain in a negative position, and to reduce the wife's super would not be consistent with the judge's finding that the husband should solely be responsible for his tax debt. We can't quite agree with the logic of that last proposition but overall, it is hard to argue with the outcome.
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