Two tax debts nobody disputed stayed out of the pool. An estimate that was not yet a debt went in.
Your client owes the ATO and their marriage has ended. Does that debt come off the property pool or do they carry it alone?
Broadly, the law and the cases treat a certain liability and a contingent one as different questions.
Most advisers would assume it comes off. It is a real debt, nobody disputes it and s 79(3)(a)(ii) tells the Court to identify the “existing liabilities” of the parties to a marriage [24].
In Pratley the Court said no.
Broadly, tax on income one party took for themselves stayed out [215]-[216].
Tax on winding up a company that would return value to the pool went in [219].
Pratley & Pratley (No 9) [2026] FedCFamC1F 398.
The facts
They married in 2006, separated in 2017/2018 and during their relationship had built a profitable business, which the husband took over post relationship breakdown [2, 5, 42].
Their contributions were agreed to be equal [6].
The dispute arose largely in respect of his conduct and the liabilities he accrued after separation [7]-[8].
He had two unpaid tax debts, $273,268 and $206,200 [209]-[210]. Nobody disputed that he owed them or would owe them [208]. He asked the Court to take them into account rather than leave them out [20].
Why the answer was (sensibly) no
In the 2022 to 2025 financial years he took salary and about $2,800,000 in franked dividends through the trust [135].
He had taken that income “to apply at his election (with limited exception) without reference to the wife” [215].
Gill J said it was not apparent why the wife should share his tax burden [215].
When the answer is yes
The $100,898 of tax on winding up B Pty Ltd was not a crystallised debt [217].
It went in anyway, as “a legitimate cost of the disposal of B Pty Ltd, which will provide a return on the balance sheet” [219].
So certainty by itself is not the test.
So what is the factor
One of the excluded debts had a notice of assessment behind it [209]. The one that went in was not a crystallised debt at all [217].
What decided it here was who got the benefit.
The pool would take the return on winding up B Pty Ltd, so the pool carried the tax. The husband took the income and applied it at his own election, so he carried the tax.
For any adviser with a client whose tax is behind and whose relationship is ending, the first question is usually not how certain the debt is. It is who spent the money.
Which leaves the case this one did not raise
Suppose the same debt had built up before separation, while both of them were living on the income.
Kowaliw is a useful starting point and in the usual course parties share the losses as well as the gains [34].
Broadly, that debt should come off the pool. The date matters only for what it tells you about who was living on the money.
So an adviser cannot answer this from the notice of assessment alone. The answer may be in the bank statements?
General information only. This note was accurate when written. The law may have changed since and the note is not updated. It is not legal or tax advice, does not take account of your circumstances and must not be relied upon as a substitute for advice on your own matter. If the issue is live for you or your client, email arda@nortonquaytaxlaw.com.au for advice on the current position.