Breaking up is hard to do. Beyond the emotional and financial turmoil divorce creates, there are a number of issues that need to be resolved.
What happens when there is a family company?
A ruling issued by the Australian Taxation Office (ATO) has created a tax burden for many divorcing couples that have assets tied up in a company. Previously, when a company transferred assets or cash to one of the former spouses under a Family Court order, many people took the view that the transfer was not treated as a dividend and did not trigger tax. However, in a ruling released on 30 July last year, the ATO confirmed that any settlements paid out by a corporate entity are treated as income and taxed at the relevant spouse’s marginal tax rate. If you are receiving assets from a corporate entity as part of a property settlement, it is essential that you understand the tax implications prior to settlement or a sizeable chunk of the settlement could go to the ATO.
For business owners, outside of the tax and financial issues, it is important to not lose focus on what’s important to keep the business running efficiently.
What happens to your superannuation in a divorce?
A spouse’s interest in superannuation is a marital asset and can be split as part of the breakdown agreement. It is important to be aware however that superannuation cannot be paid directly to a spouse unless the spouse is eligible to receive superannuation (they have met a condition of release) but it can be rolled-over into the spouse’s fund until they are eligible to receive it. Laws exist to prevent taxes such as Capital Gains Tax (CGT) being triggered when superannuation assets are transferred. This is particularly important where your superannuation fund holds property.
A Court order or Superannuation Agreement is required to give effect to the agreed split in the SelfManaged Superannuation Fund (SMSF) assets or to execute a rollover eligible for the CGT rollover concession.
If you have a SMSF and both spouses are members, it is important to get advice to make sure that all of the appropriate administrative issues are taken care of. Where a divorce is not amicable, it is important to keep in mind that the SMSF trustee is required under law to act in the best interests of the fund and its beneficiaries. Anything less and the fund members may seek compensation for loss or damage.