By Amy Davies, Associate and Emily Wood, Special Counsel

When a separated couple has assets such as investment properties, shares or businesses that form part of their property settlement, capital gains tax (CGT) may be incurred upon disposal of these assets. Generally speaking, CGT rollover relief is available if assets are transferred between the parties to the relationship pursuant to a court order or binding financial agreement, however at a future point when the receiving party disposes of the asset, they will incur that CGT. Although, the question remains whether the prospective CGT payable on the disposal of a property to be retained by one party can or should be included as a prospective liability in the property pool, if the property is not to be directly sold as part of the settlement.

If the separated couple is unable to reach an agreement about whether the prospective CGT liabilities should be included in the property pool, then the Court must exercise its discretion and make a determination as to whether the prospective liability is included to achieve a just and equitable settlement under the Family Law Act 1975 (Cth) between the separated couple.

The Court has considered this question on many occasions and most recently considered this issue in the case of Marlin & Henson [2025] FedCFAMCA 71. The de facto husband in that case sought to receive and/or retain in the property settlement several investment properties the parties acquired during the relationship. He argued he intended to sell the properties within three to five years to fund his retirement, and the CGT payable on their sale was estimated to be approximately $3.3 million. On this basis, he argued this liability of $3.3 million should be included in the property pool and consequentially there would be a corresponding reduction in the net value of the assets he was to receive and/or retain impacting the overall other adjustment of property between them.

The de facto husband argued that his position was supported by Rosati & Rosati [1998] FamCA38 (‘Rosati’) which is often cited as the leading authority on the basis that a number of the properties had been acquired as investments during the relationship. The primary judge declined to include the estimated potential CGT liability across all properties on the basis she was not persuaded that the de facto husband actually had an intention to liquidate the properties (especially in light of other evidence at trial where he had made representations otherwise to the de facto wife). On appeal, the de facto husband’s Application was dismissed, and the primary judge’s determination was upheld.

In Marlin & Henson[1], the Full Court stressed that whilst Rosati sets out the principles for the Court to consider, these are not to be treated as a “code” to follow and that Rosati is authority that the Court has ultimate discretion to include or exclude potential CGT liabilities and in exercising this discretion says the Court must consider:

1. the circumstances of the case;
2. the evidence around the prospects of the actual sale of those assets when the sale is not part of the order sought by the party seeking to include the liability;
3. the circumstances in which the parties acquired the assets;
4.  the intentions of the parties;
5. the reality of the assets presently;
6.  the limitations of predictions as to future events; and
7. whether it is a just and equitable adjustment.

The authorities tell us that the sooner the CGT liability is going to be realised, the greater the need for the Court to consider the liability and the longer a property is to be retained following the property settlement, the less justification there is to take into account potential CGT liabilities as part of the pool available for division.

Some of the reasoning for this rationale is it’s not a present liability and therefore it could be a different amount when it is crystallised in future – for example the amount payable will change if the property sold for more or less than it was estimated to sell for; or if there were expenses incurred on the property between the time of the estimate and the time of actual sale which could impact the cost base.

If you wish to include prospective CGT in a property settlement, it’s important that you address by admissible evidence all the factors in the authorities including producing evidence to persuade the Court that the sale of the asset is likely to occur relatively soon after the Orders are issued, in addition to being just and equitable in the circumstances overall. Further, admissible evidence of the amount of the liability is required at trial from a professional qualified to provide that opinion evidence.

If you’re seeking advice in relation to your family law matter, Mills Oakley Family Law Brisbane will be happy to assist. Please contact the team on 07 3010 8021.

[1] Marlin & Henson [2025] FedCFAMCA 71 (30 April 2025) [39]