Tax for Marriage, Separation, and Divorce

CGT rollover under ITAA 1997 Division 126 defers capital gains on assets transferred between spouses under a Family Court order or binding financial agreement. The transferor disregards the gain and the receiving spouse inherits the original cost base. Super splitting on divorce is not a taxable event. State stamp duty exemptions typically apply to transfers under Family Law Act instruments.

Last reviewed: 27 May 2026

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Australia taxes individuals, not couples. There are no joint returns, so each spouse lodges their own return regardless of relationship status. The critical tax event in separation is the transfer of assets: Division 126 of ITAA 1997 provides a CGT rollover for assets transferred between spouses (or from a company or trust to a spouse) under a Family Court order or binding financial agreement, deferring the capital gain until the receiving spouse eventually sells. Super can be split on divorce via a splitting order or agreement without triggering immediate tax. For self-employed people operating through family trusts, section 100A anti-avoidance rules require careful attention to post-separation distribution patterns. Division 7A of ITAA 1936 can treat company-to-spouse payments in a property settlement as deemed dividends if not structured correctly. State stamp duty exemptions typically apply to transfers under Family Law Act instruments.

The reality this serves

Self-employed Australians and small business owners going through separation or divorce, including CGT rollover on asset transfers, super splitting, family trust distribution changes, Division 7A risks in family company settlements, and Centrelink notification obligations.

How does the CGT rollover work on relationship breakdown?

Division 126 of ITAA 1997 provides a CGT rollover for assets transferred between spouses or former spouses because of a relationship breakdown. The transferor disregards any capital gain or loss at the time of transfer. The receiving spouse inherits the transferor's original cost base, so CGT is deferred until the receiving spouse eventually disposes of the asset. The rollover applies where the transfer is made under a qualifying instrument: a court order under the Family Law Act 1975 (or similar state, territory, or foreign law), a binding financial agreement, a maintenance agreement, or an arbitral award. Subdivision 126-A covers direct spouse-to-spouse transfers. Subdivision 126-B covers transfers from a company or trust to a spouse pursuant to a Family Court order or binding financial agreement. The rollover is directed at transfers to an individual spouse or former spouse. It generally does not extend to transfers to another entity (a new family trust or company controlled by that spouse) as the receiving party. This applies to all CGT assets: real property, shares, business goodwill, partnership interests, and other capital assets transferred in the settlement.

CGT rollover on relationship breakdown defers the capital gain. The transferor disregards the gain; the receiving spouse inherits the original cost base. The transfer must be under a Family Court order, binding financial agreement, or equivalent instrument. (ITAA 1997 Division 126 (Subdivisions 126-A and 126-B); ATO guidance ATO relationship breakdown and CGT rollover guide)

How is super split on divorce?

Under the Family Law Act 1975 and the Family Law (Superannuation) Regulations, super can be split between spouses on separation via a superannuation splitting order (from the Family Court) or a superannuation agreement (between the parties). The split is treated as a transfer within the super system, not an immediate cashing event. No income tax is payable at the time of the split. The underlying tax components (tax-free and taxable) follow the interest that is split. Tax arises later when each spouse accesses their own benefits under ordinary super rules. For self-employed people with self-managed super funds (SMSFs), the split may require a new fund, a rollover to a retail or industry fund, or an in-specie transfer of fund assets. Valuation of SMSF assets (especially business real property or unlisted shares) is often the most contested element. The splitting order specifies how much super each party receives. It can be a dollar amount or a percentage. Once split, each spouse's entitlement is independent.

Super splitting on separation is a transfer within the super system. No income tax at the time of the split. Tax arises when each spouse later accesses their benefits. (Family Law Act 1975 Part VIIIB and SIS Act 1993 (superannuation splitting); ATO guidance ATO superannuation and family law guide)

What are the Division 7A risks in family company settlements?

Division 7A of ITAA 1936 can treat payments, loans, or forgiven debts from a private company to shareholders or associates as unfranked dividends. In a property settlement, this is a real risk. If a family company makes payments to a spouse, transfers assets, or extends loans as part of a divorce settlement, those transactions may fall within Division 7A unless properly structured. A deemed dividend arises if the payment or benefit is not on arm's length terms and does not fall within a recognised exception. Recent ATO focus on unpaid present entitlements (UPEs) and private company benefits in the context of family law settlements has increased scrutiny. Where a family company is involved, ensure settlement-driven payments or asset transfers are documented under qualifying Family Law instruments and structured to avoid inadvertent deemed dividends. The Division 126 CGT rollover interacts with Division 7A: even where the CGT gain is deferred, the payment itself may trigger a Division 7A deemed dividend if it comes from a company to a non-shareholder spouse without proper documentation.

Division 7A can treat private company payments to spouses in a property settlement as deemed unfranked dividends. Proper documentation under Family Law instruments is essential to manage the risk. (ITAA 1936 Division 7A (s 109C onwards); ATO guidance ATO Division 7A and private company benefits guide)

How do family trust distributions change after separation?

Many self-employed Australians operate through discretionary (family) trusts. Both spouses may be named beneficiaries. After separation, the pattern of trust distributions must be reviewed carefully. Section 100A of ITAA 1936 is an anti-avoidance rule that applies where a beneficiary's present entitlement to trust income arises out of a 'reimbursement agreement': broadly, where someone else actually benefits from the entitlement in a way that reduces tax. Post-separation, if a family trust continues to distribute income to both spouses (or distributes 'on paper' to one spouse whose entitlement is then used for the benefit of someone else), care is needed that distribution patterns and any side agreements do not trigger section 100A, particularly where the self-employed spouse controls the trust. The trust deed should be reviewed to confirm whether the separated spouse remains a beneficiary and whether the trustee has discretion to exclude them. Some settlements require amendment of the trust deed or specific distribution commitments. Medicare Levy Surcharge family thresholds also change on separation. If you are no longer treated as a 'family' for MLS purposes (living apart, no longer qualifying as spouses), each person is assessed on their own single threshold ($101,000 for 2025-26) rather than the combined family threshold ($202,000).

Section 100A can apply where post-separation trust distributions create reimbursement agreements. Distribution patterns must be reviewed on separation to avoid anti-avoidance triggers. (ITAA 1936 s 100A; ATO guidance ATO trust distributions and section 100A guidance (TR 2022/4))

Allowable expenses in context

Legal fees for a property settlement or divorce are not tax-deductible as they are private in nature. However, legal fees specifically for advice on the tax implications of a settlement (CGT rollover, Division 7A structuring, trust deed amendments) may be deductible as costs of managing tax affairs under ITAA 1997 s 25-5. Valuations of business assets, SMSF property, and shares obtained for the settlement are generally not deductible (private purpose), but valuations required for ongoing business or fund compliance purposes may be. Accounting fees for restructuring trust distributions or amending company records after settlement are deductible as ongoing business administration costs.

Worked example

Brendan — Geelong, VIC

sole trader builder separating from spouse, transferring jointly-owned rental property (FY 2025-26)

Brendan and his wife Emma are separating after 12 years. They jointly own a rental property in Ballarat purchased in 2016 for $380,000 (Brendan's 50% cost base: $190,000). The property is now valued at $520,000. Under a binding financial agreement, Brendan transfers his 50% interest to Emma. Brendan also operates his building business through a family trust, of which both he and Emma are beneficiaries. Emma's super is $95,000; Brendan's is $280,000. A Family Court super splitting order allocates $92,500 of Brendan's super to Emma.

Rental property transfer:
  Brendan's 50% share: cost base $190,000, market value $260,000 (50% of $520,000).
  Capital gain without rollover: $260,000 - $190,000 = $70,000.
  Division 126 rollover applies (binding financial agreement in place). Brendan disregards the $70,000 gain entirely.
  Emma inherits Brendan's cost base of $190,000 for his half. Her total cost base for the property: $190,000 (her original half) + $190,000 (Brendan's rolled-over half) = $380,000.
  If Emma later sells at $600,000, her capital gain is $600,000 - $380,000 = $220,000 (before any 50% CGT discount).

  Stamp duty: Victorian stamp duty exemption applies (transfer under binding financial agreement due to relationship breakdown). No duty payable.

  Super splitting:
  Family Court order transfers $92,500 from Brendan's fund to Emma's fund.
  No income tax at the time of the split. Brendan's remaining super: $187,500. Emma's total super: $187,500.
  Tax arises when each accesses their benefits under normal rules.

  Family trust:
  The trust deed is reviewed. Emma is removed as a beneficiary by trustee resolution (permitted under the deed). Future distributions go to Brendan and his children only.
  Section 100A review: no ongoing distributions to Emma, no reimbursement agreement risk post-separation.

  Brendan's building business income ($140,000 profit) is taxed normally in his individual return. The settlement itself generates no CGT event, no deemed dividend, and no stamp duty.

Support schemes

CGT Rollover (Marriage/Relationship Breakdown)

Eligibility: Spouses or former spouses transferring CGT assets under a Family Court order, binding financial agreement, maintenance agreement, or arbitral award.

Stamp Duty Exemption (Relationship Breakdown)

Eligibility: Spouses or former spouses transferring dutiable property (real estate, certain other assets) solely because of the breakdown of a marriage or domestic relationship, under Family Court orders or compliant financial agreements.

Superannuation Splitting on Divorce

Eligibility: Spouses separating under the Family Law Act 1975. Requires a superannuation splitting order (Family Court) or a superannuation agreement between the parties.

Frequently asked questions

Are legal fees for divorce tax-deductible?+

Legal fees for the divorce itself or property settlement are not tax-deductible (private expense). However, fees specifically for advice on tax implications of the settlement (CGT rollover structuring, Division 7A analysis, trust deed amendments) may be deductible as costs of managing your tax affairs under ITAA 1997 s 25-5. Ask your solicitor to itemise the invoice so tax-related advice is identifiable.

Do I need to notify Centrelink when I separate?+

Yes. You must report changes in relationship status, care arrangements, and income to Centrelink within 14 days. A change from 'partnered' to 'single' affects Family Tax Benefit, Child Care Subsidy, Parenting Payment, and other income-tested payments. If you are self-employed, also update your income estimate as your business circumstances may change around separation. Failure to notify can result in overpayment debts and penalties.

What happens to child support when I am self-employed?+

Services Australia calculates child support using your adjusted taxable income (not gross revenue). For self-employed parents, the agency can scrutinise business income and deductions. If your reported taxable income does not fairly reflect true earning capacity (for example, excessive private expense claims or artificially reduced income), the assessment can be adjusted upward. Expect close examination of your returns during and after separation.

Can Division 7A apply to my family company during a property settlement?+

Yes. If a family company makes payments or transfers assets to a spouse as part of a settlement, Division 7A can treat those as unfranked deemed dividends unless properly documented under qualifying Family Law instruments. Loans extended by the company to a spouse also attract Division 7A if not on compliant terms. Get specific structuring advice before any company-to-spouse transactions in a settlement.

Last reviewed: 27 May 2026