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Can the Court Substitute a Spouse’s Name For a Tax Debt?

A debt to the Australian Taxation Office (ATO) is not a rare sight on a balance sheet in family law matters. The debt will be considered by the Court in the determination of the property alteration following the breakdown of a marriage or relationship.

This type of debt will be considered whether it is a joint debt in the names of both spouses, a debt in the name of either spouse (a liable spouse), and also debts that the other spouse may or may not be aware. There are many reasons for this, including, the other spouse is likely to have received the benefit of the liable spouse’s non-payment of tax, it the debt may be considered a matrimonial/joint debt for Court purposes and it will need to be considered when assessing parties’ future needs.

The Full Court where given a Case Stated on 22 August 2016 and returned their judgment on 13 October 2017.

The question to the Full Court, “Does s90AE(1)-(2) of the Family Law Act grant the court power to make Order 8 of the final orders sought in the amended initiating application of the wife?”

In this case the wife was indebted to the Commissioner of Taxation in the amount of $256,078.32, plus General Interest Charge. The Commissioner argued that s90AE does not bind the Crown insofar as the tax debt was concerned. The Commissioner was granted leave to intervene in these proceedings.

The Court started by finding the law on presumptions of legislation binding the Crown. It was found that there was no need for the presumption in this case as the Commissioner would be on notice of an order under s90AE and would be entitled to be heard on the issue “of the issue of the foreseeability of the tax not being paid if one party were to be substituted for the other.”

The Court discussed alternative remedies, including one spouse to pay the debt of the other spouse, however the substitution provisions under s90AE have further potential to promote the objectives of s81 to “finally determine the financial relationships between the parties to the marriage and avoid further proceedings between them”.

The answer by the Full Court: “Yes, but with the provision that s90AE(1) confers power only to make an Order that the Commissioner be directed to substitute the first respondent for the applicant in relation to the debt owed by the applicant to the Commissioner of Taxation for the Commonwealth of Australia.”

If you require particular advice on the inclusion of a tax debt, contact one of our family lawyers.

Image Credit – ginasanders ©

Written by Natasha Heathcote on April 1, 2018

Natasha has a strong passion for family law, and believes that the law can be used to achieve positive resolutions for her clients. When working with clients, Natasha shows compassion and first seeks to understand what is important to her clients, then looks for legal solutions that will best suit them. View Natasha's profile

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