Separation is never easy, and when it comes to dividing property, assets, or superannuation, the emotional toll is often matched by financial complexity. A common question is, Will I have to pay tax on my divorce settlement in Australia?
The answer isn’t always straightforward. While many transfers made under a formal divorce settlement aren’t taxed immediately, the long-term tax implications, particularly around capital gains tax (CGT), superannuation, spousal maintenance, and stamp duty, can be significant. Understanding these factors early can help you avoid financial surprises later.
In Australia, if property and financial agreements are made under a court order or binding financial agreement, the transfer of assets between spouses typically does not attract immediate tax. The Australian Taxation Office (ATO) allows CGT rollover relief, meaning capital gains tax is deferred until a later disposal of the asset.
However, this relief isn’t tax elimination, it’s tax postponement. The person receiving the asset takes on the original cost base and acquisition date. So, when they eventually sell it, CGT will be calculated as if they’ve owned it since the beginning. This is where many divorcees are caught off guard; they assume the transfer is tax-free for good, only to face a hefty tax bill down the track.
Property is often the largest asset divided during separation. If transferred as part of a formal agreement, it qualifies for CGT rollover, but the eventual sale of that property could trigger significant CGT liabilities, especially if the property was an investment rather than a primary residence.
For instance, if you receive an investment property purchased many years ago and then sell it post-divorce, the gain will be calculated from the original purchase price, not from the settlement date.
Superannuation is treated as property under the Family Law Act and can be split accordingly. The good news? There’s no tax payable at the time of the split. But when you eventually withdraw the funds, standard superannuation tax rules apply, depending on your age, tax-free thresholds, and the components of the super fund.
Whether you’re receiving or retaining super benefits, it’s important to factor in future tax treatment on withdrawals, especially if retirement is still a long way off.
Unlike child support, which is tax-exempt, spousal maintenance is considered taxable income for the recipient in Australia. For the payer, it may be tax-deductible, depending on how the arrangement is structured.
To avoid unexpected tax bills or missed deductions, it’s critical to seek legal and financial advice before agreeing on spousal maintenance terms.
A well-structured settlement can minimise tax burdens for both parties, both now and in the future. Here are some ways to protect your financial interests:
One of the most overlooked tax considerations during separation is stamp duty. When assets such as real estate are transferred as part of a formal divorce settlement, they are exempt from stamp duty.
However, this exemption does not apply to informal arrangements, even if both parties agree. A handshake deal or casual understanding could result in thousands in unnecessary duty.
Dividing business interests or family trust assets requires special care. These structures often come with added layers of tax complexity, including:
Poor handling here can lead to long-term compliance problems and financial losses.
Divorce may not trigger tax today, but without a clear understanding of what comes next, you could be setting yourself up for avoidable costs. Whether you’re dividing the family home, superannuation, or business assets, every financial choice in a divorce can carry long-term tax consequences.