Dealing with tax debt
The Family Court holds that parties to a marriage (or defacto relationship) should share in the good economic times as well as the bad that occur in their relationship, even if the losses have been caused by the actions of one party. Only where there are ‘good and substantial reasons’ should there be a departure from this general principle and in those cases the greater share of the loss will be retained by the party who incurred the loss. The court recently considered whether the husband’s unpaid (ATO) debt and penalties should be included in the pool of property to be divided between the parties.
Following the sudden death of his father, the husband developed a significant gambling problem. The wife was unaware of the husband’s gambling and by the time the husband agreed to cease all gambling he had a significant ATO debt. The parties then secured an overdraft of $50,000.00 to discharge the husband’s unpaid tax liabilities. The husband continued to struggle with his finances and accumulated over $170,000.00 in unpaid taxation, interest and penalties.
The husband was found to be suffering severe depression and a post-traumatic stress disorder (PTSD).
The court concluded that despite suffering PTSD, the husband’s psychological functioning was not so compromised that he was unable to manage his financial affairs. The husband was found by the court to be “negligent or recklessly indifferent” towards his taxation responsibilities and he alone should bear the penalties and interest to the ATO.
Accordingly, the court found that it would be unjust to include the ATO debt as a joint matrimonial debt and the husband should bear the greater responsibility. The ATO debt was treated separately from the remainder of the pool of property.
It was ordered that the parties should bear half of the unpaid tax as a joint matrimonial debt and the husband be solely responsible for the remaining 50% and penalties.