Issues affecting your property settlement

Borrowing capacity

Borrowing capacity is the maximum amount of money that a person can borrow from a bank or lender. A person’s borrowing capacity can be considered when deciding how to divide property. It can affect whether that person can afford to keep an asset, such as the family home.

Borrowing capacity is not property.

The court can’t order someone to pay a lump sum of money if there is not enough money in the property pool to cover that amount, and no property that can be used as security to borrow that money.

Before you agree to borrow money for your property settlement, you should speak to your bank or a financial counsellor.

Transfer duty

Transfer duty is a tax that you must pay when you buy a property, or someone transfers ownership of a property to you. It is also known as stamp duty.

The amount you owe is calculated based on the property’s sale price or its current market value, whichever is higher.

You may be exempt from paying transfer duty if you are transferring property under the terms of your property agreement.

For more information, see Transfer duty exemptions.

Capital gains tax

Capital gains tax is a tax that you must pay when you sell an asset for a profit, such as a house, shares or cryptocurrency. It is a part of your income tax. If you sell an asset for a profit, you need to declare this in your tax return. This includes assets you sell as part of a property settlement.

However, if you transfer an asset as part of a property settlement, you may be eligible for the relationship breakdown rollover.

Relationship breakdown rollover

If you and your ex-partner transfer an asset between yourselves, as part of a property settlement, you may be eligible for the relationship breakdown rollover (‘the rollover’).

If you are eligible:

• the person transferring the asset won’t have to pay capital gains tax
• the person receiving the asset won’t pay capital gains tax until they later sell or dispose of the asset.

To be eligible for the rollover, the transfer must be set out in:

• property orders, including consent orders
• an award made in arbitration
• a binding financial agreement
• a domestic relationship agreement or termination agreement made under the Property (Relationships) Act 1984 (NSW).

The rollover doesn’t apply to informal agreements.

For more information, see Relationship breakdown and capital gains tax on the Australian Taxation Office website.

If the family home that you and your ex-partner shared was transferred to you under a property settlement, you may be eligible for the main residence exemption to CGT.

To be eligible, the property must:

• have been you and your ex-partners home for the whole time you have owned it
• not have been used to produce an income – this means, used to run a business, rented to tenants, or renovated and sold for a profit
• be on 2 hectares or less.

For more information, see Main residence exemption in relationship breakdown.

Bankruptcy

Bankruptcy is a legal process where a person is released from paying their debts that they can’t pay. There are two ways to become bankrupt:

• voluntarily applying to be made bankrupt, or
• creditors applying to make a person bankrupt.

If you are bankrupt or a debtor under a personal insolvency agreement, you must notify:

• your ex-partner
• the bankruptcy trustee or the trustee of the personal insolvency agreement
• the court.

If you are a party in bankruptcy proceedings, you must notify the court and your ex-partner:

• in writing
• within seven days, or as soon as practicable
• giving them the date and location of the next court date.

Before you apply to become bankrupt, it is important that you should speak to a financial counsellor about the consequences of bankruptcy. Even though you won’t have to pay your debts, you will still be serious consequences.

For more information, see Bankruptcy and property settlements.