Gambling, Tax Debts and Separation – Can you be ordered to pay your partner’s debt?

by Nadja Khelifi,Family Lawyer

Have you ever been held responsible for the actions or omissions of somebody else? Do you worry that your partner might be making poor financial decisions that could affect you after a separation?

In Snipper & James and Anor [2018] FamCA 7 (12 January 2018), a former housewife and mother of 3 was required to pay her own tax debt as well as parts of the tax debt owed by her estranged husband of 21 years.

The Family Court of Australia evaluated the marital asset pool and found that the wife brought a larger portion of assets than the husband into their marriage..

Assisted by her family fortune, the wife contributed financially with real estate and company profits while the husband earned an annual income of $589,000.00. The husband’s gambling habits consumed nearly half of the $2.5 million attained by the wife.

The Court considered a number of factors when determining whether the wife should be liable for the husband’s tax deficit, including but not limited to matters regarding:

  1. whether the husband’s taxation debts that were incurred pre or post separation;
  2. the financial impact of the husband’s gambling habits;
  3. the ongoing liabilities of the parties including making payments for child support and to the Australian Taxation Office;
  4. what constitutes a just and equitable distribution of the assets between the parties based on respective contributions; and
  5. the size of the asset pool compared to the debt(s);
  6. whether the wife benefited from the husband’s tax evasion.

It was found that a significant portion of the debt accumulated before the parties separated, and that the wife did benefit from the husband’s earnings after the marital split. Consequently, the wife was required to discharge 10 per cent of the husband’s tax liabilities in addition to making payment of her own deficit.

The Court noted that the wife would not receive any assets if she was required to pay off the husband’s tax debt in its entirety and ordered the wife to contribute in the sum of $600,000.00.

Ultimately, the decision in Snipper & James and Anor confirms that a party can be held liable for taxation debts of their spouse providing that such recourse is just and equitable in the circumstances.

Do you fear you may be exposed to incurring tax debts or liabilities on behalf of your spouse?

Contact Fedorov Family Lawyers today. Our legal team can assess your current circumstances and entitlements. We can also assist with referrals to other industry professionals such as accountants and financial planners to ensure that you properly safeguard your financial situation during a relationship breakdown.

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