As a Family Law specialist, Damien Greer Lawyers are well placed to advise on legal matters and how best to approach divorce and negotiate potential outcomes.
However, when investment properties or assets are involved we would always suggest that you also work with tax planners and financial consultants who can advise on the potential taxation consequences of selling or changing ownership of these types of investments.
One of the biggest implications of transferring full or part ownership of an investment asset is that it can trigger Capital Gains Tax (CGT) as well as other financial costs.
Under Australian Tax Law, Capital Gains Tax is normally triggered by any change in ownership of an asset.
However, if a transfer of an investment property or asset is subject to a binding agreement or order under the Family Law Act, there is a rollover relief which will mean that the transfer of the property or asset will not trigger CGT.
Rollover implies that the transferor is not subject to the capital gain or loss that would otherwise arise. This means that the person who receives the asset (the transferee) will make the capital gain or loss when they subsequently dispose of the asset later.
Based on that very broad framework, there are natural legal and financial implications that your divorce and tax adviser should collectively advise you on.
For example: –
- Would you want to have investment property transferred, allowing the benefits of a rollover only to be “trapped” with that investment at sale point should it trigger an onerous CGT cost?
- Could you negotiate a contingency to offset any future triggering of CGT?
- Would it be appropriate for the value of the prospective CGT amount be included/considered as part of the net property pool?
From a legal perspective, the division of assets to include investment property, the marital home, financial assets and the such, should be negotiated at the very first level between the separating parties and, depending on the ability to talk between the former partners, this should be through open negotiation.
However, in order to ensure that rollover relief can be obtained via a binding agreement or Court Order, legal advice should also be sought at an early stage in the negotiations.
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