Divorcing Spouses CGT Asset Rollover

The Australian Bureau of Statistics report ‘Marriages and Divorces, Australia, 2013’ confirms there were 118,962 marriages registered, and 49,917 divorces granted in that year. These statistics show that approximately one in three first marriages end in divorce and fifty percent of second marriages. The median length of time from marriage to divorce is now 12.5 years with women more likely than men to initiate divorces.

This strategy is about considering the tax issues involved with divorcing spouses. The sale of assets between spouses (or ex-spouses) generally results in capital gains tax applying.

As an exception to this rule the ATO allows an automatic rollover in certain cases where assets are transferred between spouses as a result of marriage or relationship breakdowns.

This rollover ensures the transferor spouse disregards a capital gain or capital loss that would otherwise arise. In effect, the one who receives the asset (the transferee spouse) will make the capital gain or capital loss when they subsequently dispose of the asset. The transferee’s cost base will be the original cost base the transferor spouse had for that asset.

This rollover is mandatory and automatically applies if a marriage or relationship ended after 20 September 1985 and an asset was transferred to a spouse, an asset was transferred from a spouse, and a company or trust transfers an asset to a spouse.

Divorcing spouses should consult both legal and taxation professionals for advice before doing anything. This is because when splitting the joint assets the tax liabilities attached can be very material and need to be factored into any property settlement.