When couples separate, dividing assets is rarely as simple as comparing their current market values. In a recent article in Accountants Daily, Michael Tiyce, Principal at Tiyce & Lawyers, highlighted the potential tax consequences separating couples can overlook when negotiating property settlements.

Michael warned that assets with the same headline value can have very different financial outcomes once future tax liabilities are taken into account.

“A $1 million investment property and $1 million in cash may look equivalent on paper but the property may carry a significant unrealised capital gain and future tax liability.”

He emphasised that separating couples need to consider not only what assets are worth today, but also the potential liabilities that come with retaining them.

“The tax position can effectively follow the asset, meaning someone who retains an investment property, shares or a business interest may also be taking on the future CGT exposure associated with that asset.”

Michael also explained that a relationship breakdown does not necessarily trigger an immediate capital gains tax bill. In qualifying circumstances, CGT rollover provisions can defer the tax consequences, but the underlying liability remains attached to the asset.

“The tax position does not simply disappear.”

For this reason, Michael encouraged couples to obtain tax and accounting advice early in the separation process, rather than treating taxation as an afterthought once a settlement has been negotiated.

“Understanding the potential after-tax position first puts both parties in a much stronger position to make informed decisions about timing, asset division and their long-term financial position.”

He also highlighted the important role accountants and tax advisers can play in helping separating couples understand the real, after-tax value of their settlement options.

“An apparently equal division of assets is [not necessarily] likely to produce an equal financial outcome in the longer term.”

Michael’s comments reinforce the importance of bringing family lawyers, accountants and tax advisers together when negotiating complex property settlements, particularly where investment properties, shares, businesses or other capital assets are involved.

Read the full article here: https://www.accountantsdaily.com.au/business/22813-separation-anxiety-cgt-mistakes-to-avoid-on-assets-when-couples-split-up

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