Divorce and investment property issues are real and can cause problems. Speak to Alliance Family Law for sound advice to avoid future problems.
When a couple with investment properties in their portfolio decides to separate, one member will often find it attractive to simply move into an investment property, circumventing the immediate need to find a new home to live in. But it’s important to be aware that this may impact on tax liabilities and ultimately the property settlement.
About 2 million Australians are now estimated to own at least one investment property. A recent story in the Australian Financial Review has explained how some owners may be under the false impression that if they move into their investment property, the property will no longer be subject to Capital Gains Tax.
The newspaper points out that “even if such a property turns into a permanent residence, it can never shed the consequence of having been an investment in the past”. When an investment property is sold, the owners remain liable to pay Capital Gains Tax on it, whether or not one of them has decided to occupy the property at some stage. Moving in for any length of time “doesn’t change it from being taxable to being non-taxable”.
What moving in does may do is reduce the eventual Capital Gains Tax liability. In an example described, an investment property is jointly owned by Bill and Prue for six years. After separating, Prue lives in the investment property for a year, so the taxable capital gain is reduced by a sixth. But for the6 year period where the property was an investment, it will still be taxed. Both Bill and Prue should discuss this situation with their lawyer so they do not get any nasty surprises at the next tax year, long after they did their consent orders without a lawyer.
The situation is nothing new but is thought to be becoming relevant to more people since people are when getting divorced often when holding a few investments. The number of older , established, couples separating has in fact doubled in the past 35 years.
Over 10% of married men in the 55 to 59 age group divorced last year, while for women in this age group, the divorce rate was 7.9%. And the median age is expected to rise for both genders. The dissolution of marriages of longer duration (such as 30 years of marriage) is also rising.
With more older couples divorcing now than younger ones, and being older meaning you are likely to have more assets, it follows that property settlements tend to be much more complex.
Compared to in the past, older couples these days typically have far more complex financial issues to deal with, such as share portfolios, SMSFs and diversification of their investments into often multiple properties. Says a lawyer quoted in the article:
“They’re really ‘First World’ problems [that] people didn’t have to deal with in the old days. In our parents’ day, people had a house, a car, a joint bank account and probably didn’t have much else.”
No matter your age, if you have investment properties and are splitting up, it’s worth taking a look at the story to see some detailed hypotheticals on how CGT is split when one member of a separating couple moves into an investment property.
Please contact our Accredited Specialist Family Lawyer Cristina Huesch of Alliance should you wish to discuss your situation with us.
Source for this blog on divorce and investment property:
Do you require legal assistance with a family law matter? Please contact Canberra family lawyer Cristina Huesch or one of our other experienced solicitors here at Alliance Family Law on (02) 6223 2400.
Please note our blogs are not legal advice. For information on how to obtain the correct legal advice, please contact Alliance.