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Reconciliation and resumption of cohabitation can have a monumental effect on your divorce proceedings. A reconciliation will affect your date of separation, which in turn can affect property division and other aspects of your case. The impact of reconciliation combined with the attitude that the courts generally prefer parties to reconcile, has resulted in some special rules with regard to reconciliation and resumption of cohabitation.

First, with regard to reconciliation, if the court determines that based on the evidence or attitude of the parties, a reasonable possibility of reconciliation exists, the court has the power to suspend the proceedings. This adjournment is designed to allow the parties the time and opportunity to consider reconciliation. However, if either party wishes to resume court proceedings, the court is compelled to grant this request.

Moving back in together, more specifically, resumption of cohabitation can also have a huge impact on your divorce proceedings. If you resume cohabiting, and then later agree to separate again, the period of time you had previously been separated may not apply when trying to meet the twelve-month separation requirement for divorce.

Now you may be wondering – what exactly equates to a resumption of cohabitation? The answer is that both parties must intend to resume cohabiting, act on that intention, and also be living on substantially the same terms as they were prior to the separation. An agreement to move back in together that never comes to fruition does not meet this standard. Also, simply moving in under the same roof but not resuming other aspects of the marital relationship will not equate to a resumption of cohabitation.

If you are considering moving back in with your ex, you should be aware of the special rules regarding resumption of cohabitation. As we mentioned earlier, the court has a preference for parties to make amends, and they would prefer parties at least attempt reconciliation if there is a chance it might work rather than be too afraid to try because of the impact that a reconciliation can have on the divorce proceedings. For this very reason, the court allows parties to move back in together for one period of time up to three months without there being any prejudice to their application for divorce.

Practically speaking, if you resume cohabiting and then separate again within three months, you may use the period of time you were previously separated in calculating the twelve-month requirement. On the other hand, if your resumption of cohabitation lasts for three months or longer, you will have to separate for a further twelve months before you can file for divorce.

This article is designed to address the tax consequences of certain divorce related actions, such as spousal maintenance and property division. This area is very complex and nuanced, and while we will provide a broad framework for the tax implications related to divorce, should you need specific information or have questions about your situation, please consult your lawyer or a tax specialist. In fact, we advise that you consult a tax adviser even in straightforward cases, just so you will not experience any unexpected tax consequences.

Maintenance Exemption and Deduction

Maintenance payments are exempt from the receiver’s income tax if the payments are made to a person who is or has been a spouse of the one paying maintenance, to or for the benefit of a child of the payer, or to or for the benefit of a child of the other party to the marriage. This exemption extends to maintenance received by a de facto spouse, as well. The general rule is that there is no tax assessed on maintenance received.

The exemption will only apply to payments attributable to the maintenance payer – and not in situations where the payer makes the payments to divest himself or herself of an income-producing asset, or to divert ordinary income that would otherwise be taxable. Essentially, the exemption will not apply if the payer is not acting improperly.

With regard to deductions, the maintenance payer may not deduct maintenance payments from his salary or wages; spousal maintenance may not be claimed as a tax deduction.

Property Division

The tax that is sure to rear its head in the property division area is the capital gains tax. Capital gains taxes are triggered upon the happening of a capital gain event, which can be a gain or a loss of assets. There are more than 50 events enumerated in the Income Tax Assessment Act (ITAA), and they range from the disposal of a capital gains tax asset to the grant of an option or lease.

Certain assets and transactions are exempt from capital gains tax, including vehicles (that carry less than 1 tonne and hold less than nine passengers), trading stock, and the disposal of a life insurance policy by the original beneficial owner of the policy. The right to payment from a superannuation fund or other approved deposit fund is also excluded from capital gains tax.

Capital gains and losses related to the dissolution of a marriage or de facto relationship are exempt from capital gains tax.

The law also provides for certain roll-over relief for transfers between spouses. For instance, if your former spouse transfers an asset with capital gains tax attributes, the roll-over relief allows you to take it as the transferor had it (with the same capital gains tax attributes). Additionally, if an asset was a personal use asset to the transferor, it will be considered a personal use asset to the transferee as well, and special rules apply to calculating capital gains for these assets.

There are specially carved out rules with regard to dwellings and capital gains taxes. Particularly if the main residence is used for business purposes as well – in this case a special exemption to capital gains tax will apply.

Superannuation, specifically the splitting of superannuation, carries it’s own tax implications. For instance, if one surrenders their rights to payment out of this type of fund, the capital gains tax provisions will not apply. Additionally, when dealing with splitting certain tax concessions like roll-over relief can apply. Moreover, certain public sector funds will even have untaxed elements or other schemes not subject to tax.

With the lengthy list of exemptions and complexity of capital gains tax law, sometimes it is necessary to make decisions as to how you and your spouse plan to treat certain capital gains tax assets. For instance, you will have to decide which dwelling will be considered the main residence, or you may chose to nominate multiple dwellings as the main residence. These choices you make will certainly have tax implications and thus should be decided prior to any transfer. Typically parties agree to these choices by signing a statement prior to transferring the property, but bear in mind that once a choice has been made, it is binding and cannot be changed or altered later.

Legal costs can also result in tax implications. They are considered in part of a capital gains calculation as incidental costs related to disposal or acquisition of a capital gains asset. These costs should be considered separately from the asset, and should be treated differently. Additionally, money spent on legal or tax advice might be deductible under the ITAA.

Property Orders

The court is given broad discretion with regard to property orders and has the power to alter property interests as it sees fit. However, the court is to consider the implications of capital gains taxes that will arise if a party is forced to dispose of property by order of the court.

Certain exemptions and concessions under capital gain tax law may be available if a property order causes a capital gains tax event to occur. For instance, an order requiring the transfer of property may trigger the marriage breakdown roll-over relief provisions.

As you can imagine the tax implications that can arise through divorce are boundless. The law is very complex; this article is merely intended to give you an idea of the implications and consequences so you may be prepared to address these issues with regard to your specific situation.

Choosing a divorce lawyer should be like making any other big Should be a process like when you buy a house or choose a school for your children.  Educate yourself, ask around, ask questions, research on the internet.

Learn about the divorce laws first.  This is important for two reasons.  One, it will give you an idea of what’s involved, which in turn gives you a better sense of control.  The second reason is that it means you’re better informed, so when you start looking for a lawyer, you’ll better understand what he or she is talking about.

Do your research.  Ask friends and family, call your local law society, ask others who have been through divorce, search the internet.  Build up a list of names, including lawyers people recommended not to use.

Figure out what kind of lawyer you need.  Ask yourself what kind of person you want to work with.  Are you looking for an aggressive fighter who will get you everything you want and win the battle or do you want someone who can gets results with a more gentle approach?   Do you need someone who will explain everything to you each step of the way or do you prefer to let go and leave the whole burden to the lawyer?

Narrow down your list. Do some background checking on the names you received.  Look them up on the internet.  If he or she wrote any articles or papers, read them.  This will give you a sense of who this person is and their knowledge of the field.  Ask other people who used the lawyer.  A few bad recommendations should tell you not to hire this person.

Choose a family lawyer.  Family law is a very specialised area.   Your brother’s best friend might be an amazing criminal lawyer, but that’s not too helpful when you have a parenting dispute with your former spouse.

Start with a phone call.  You can learn a lot just from that first call.  How long does it take for the lawyer to call you back?  How does the lawyer treat you on the phone?  Use this opportunity to ask about fees.  You might discover immediately that their price is too high for you.  If you decide you do want to meet them, find out if they charge for an initial meeting.  Most lawyers do charge for a first consultation.

Interview before you hire. Set up appointments with the lawyers who sound right.  Look at this as a job interview – where you are the employer.   How are you treated during the interview?   Is the lawyer answering calls or checking emails?  Is he slandering other lawyers, or worse, other clients?    Do you feel you can confide in this person?  Sometimes a first read is not correct, but sometimes it’s good to go with your gut feeling.  You know what works for you.

Consulting with other experts.  Family law requires knowledge in other fields, such as business, wills, estates, etc.  Does the lawyer have other professionals to consult with?  You want your lawyer to give you a full picture of the situation and the possible outcomes.  Broader knowledge may be required.

When you choose, get it in writing.  An agreement should include what the lawyer’s work will include and his or her fees.   Does he work hourly or by the case?  What about additional fees or changes in circumstances?  Emergencies?