03 Nov How divorce impacts the family home
When a couple is facing divorce there are a number of difficult and emotional decisions to be made. One of these is breaking up the assets that the couple own and one of the most important ones is the family home.
The family home is more than just an asset it is where a family lives and shares their lives. However, when going through a divorce the family home is often one of the most contentious assets.
Usually the home is jointly owned by both parties. However, this can become completed if the couple has placed the ownership into the person that has a lower tax bracket, or if it is placed in the name of the stay at home parent.
Lets look at a few scenarios to best explain the tax treatment of the family home when going through divorce.
Family home is transferred to one individual
If the home is transferred to one of the parties and they want to sell the home. If they decide to live in the home until it is sold and they don’t own another home somewhere else. Then their main home exemption will apply and they won’t pay GST on the sale on the home.
Family home is transferred to one individual and they rent it out
Continuing with scenario 1 if the recipient decides to rent out the home and doesn’t own another main home somewhere else then the temporary absence rule may apply. This means the home may continue to be tax free for up to six years. At this point a partial CGT may apply.
Recipient indicates a different main residence and rents out the family home
If the recipient indicates a different home as their main residence and then rents out the family home after the divorce then the main residence exemption will not apply. In this case the recipient will now have acquired the old family home at ‘market value’ and if they later sell this home then CGT will be applied.
The couple own two homes
In this case the couple can choose one of the homes as their main residence and therefore this will be exempt from CGT. However, they may choose both homes as their main residence and claim a partial main residence exemption on both homes.
Approaching divorce is a difficult time for both parties. To begin with you need to work through the breakdown of the relationship and at the same time put the right steps in place financially to ensure you are financially healthy as you move into your next stage. If you have any questions or would like to know more about divorce and your financial health attend our upcoming seminar or contact me directly firstname.lastname@example.org