26 June 2013 Are you in bed with the tax man?

By Josephine Blight

In Brief

Family Law Courts have far-reaching powers to refer allegations of tax evasion to the relevant authorities. Warring spouses should be extremely cautious before raising these allegations unnecessarily within the context of their family law proceedings.

Secrets are often shared freely between bed fellows however upon a bitter marital dispute private matters can quickly become public knowledge.

The raising of allegations of tax evasion and/or fraud within proceedings arising from the breakdown of a marital or de-facto relationship can have wide ranging consequences and ramifications.

Where allegations are made by one or both parties during court proceedings which identify breaches of Commonwealth Laws the court is entitled (and on one view it has a positive duty) to bring the breaches to the notice of the relevant authorities.

One such ramification arises in circumstances where one party makes allegations in relation to the other party having committed tax evasion. The applicable case law states that it is not necessary that there is a solid finding that the fraudulent conduct or tax evasion has occurred and prima facie evidence that it may have occurred (ie. the untested allegations of one party) is sufficient for the court to refer the matter to the Australian Taxation Office (ATO). This may result in a lengthy adjournment pursuant to the provisions of s79(5) of the Family Law Act until the conclusion of any investigation by the ATO so that the liability (if there is one) can be quantified. If tax indeed needs to be paid, then the tax and any penalties may be deducted from the pool of assets available for distribution between both parties, even if the party who raised the allegations had no knowledge of the alleged tax evasion and/or fraud at the time.

What should you do if you have concerns in relation to the legality of your former partner's conduct?

Given the very serious ramifications, it is best to take specialist legal advice in relation to how, if at all, such concerns should be raised within the context of your family law proceedings. You should also ensure that consideration is given to whether appropriate protection, such as mutual indemnities, should be included in any settlement which is reached out of court.

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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