Breaking up is difficult to do. Beyond the emotional and financial turbulence that divorce causes, there are a number of issues that must be addressed.
What happens when there is a family business?
Couples with assets invested in a company must consider the tax implications of any settlements paid by the company. Settlements given out by a corporate entity may be recognised as taxable dividends and taxed at the applicable spouse’s marginal tax rate.
If you are obtaining assets from a corporate entity as part of a property settlement, it is critical that you understand the tax consequences before proceeding with the settlement, or a sizable portion of the settlement may go to the ATO.
Aside from tax and financial difficulties, business owners must maintain focus on what is critical to keeping the firm functioning smoothly.
What happens to your superannuation during a divorce?
A spouse’s interest in superannuation is a marital asset that can be divided as part of a separation agreement. It is crucial to note, however, that superannuation cannot be given directly to a spouse unless they are qualified to receive it (they have met a condition of release), but it can be rolled over into the spouse’s fund until they are eligible. Laws exist to prevent taxes, such as CGT, from being triggered when superannuation assets are transferred. This is especially significant if your superannuation fund owns property.
A Court order or Superannuation Agreement is required to carry out the agreed-upon asset split or to execute a rollover qualifying for the CGT rollover concession.
If you have an SMSF and both spouses are members, seek assistance to ensure that the necessary administrative difficulties are addressed. Where a divorce is not amicable, it is critical to remember that the SMSF trustee is expected by law to operate in the best interests of the fund and its beneficiaries. Anything less, and fund members may claim reimbursement for losses or damages.
Can you prevent both parties from divorcing?
In a divorce, assets are divided depending on a variety of variables, including earning capacity, child support, and pre-marriage assets.
Many couples do not enter marriage with an equal understanding of how assets and income should be allocated unless something goes wrong. If there is a gap in each spouse’s income levels, the household as a whole benefits greatly from balancing how income flows through the family.
If your partner earns less than you, there is a significant financial incentive to filling up their super because superannuation has lower tax rates.
The same applies to taxable income. Evening out household income helps to distribute the tax burden. Effective planning can make a difference.
