Forget the Prenup. With Capital Gains Tax It’s All About The Pre-Purchase...

I’m a romantic whose heart melts when an engagement is announced. Who doesn’t wish the soon to be happy couple the very best in their lifelong journey ahead? At that moment, hopefully no one is thinking that statistically they only have a 50% chance of making it to “death-do-us-part”.

As we became more immune to those stats, prenups went from awkward, drama inducing conversations to pretty normal. Today, if one spouse has more assets than the other, then most would agree that it’s a good idea to have some kind of intelligent conversation before a couple legally combine their hearts, lives and finances. 

But what about during the marriage?

As a couple’s life merges, one of the first thing that they combine are their money and money goals. Building assets together is hugely exciting - many will buy a family home and some will buy an investment property. This is when things can get tricky, if the love affair falters. Again, statistically speaking, of the 50% of marriages who won't make it, money is sited as a huge hurdle for most couples.

All the more reason to get things sorted out as you go.

Capital Gains Tax – Splitting The Family Home

If you do end up navigating a relationship breakdown, picking through your assets can be excruciating and if properties are in both your names, you’ll need to know what’s what – the problem is, once the property is bought, it’s often too late to change the name on the deeds. So, when you’re thinking of buying a joint asset have a long hard think about whose names it should be bought in. If you don’t, you may find yourselves giving your hard-earned investment property money to the tax office.

This is such a simple thing to nip in the bud but unfortunately, it's a very common situation for parting couples to find themselves in. When I'm working with couples, all too often, they have no idea whose name to put on the contract or just assume it should be in both their names. At that stage, I always ask them to have a quiet chat amongst themselves, or better still, with their accountant.

Splitting The Family Home – No Capital Gains Tax (CGT)

If your only property is your family home, transferring its deeds from one spouse to the other is pretty straight straightforward with no CGT involved (of course deciding the percentage of the split may well be stressful). Take a look here:

But, it gets tricky when investment properties were bought in both names and the more there are, the trickier it gets.

Splitting Investment Properties – CGT Payable

For example if, as a couple, you own your family home and an investment property, you may decide to take a property each. If so, tread carefully.

While, as shown above, the family home is exempt from CGT the investment property will be a whole other ballgame. The partner who gets full ownership of the investment property will be liable to pay CGT on any profit that was made, when they come to sell. 

The long and short of it is, CGT is something to be considered when buying an investment property and is a midfield when going through a property settlement. So, get yourself a good accountant and have a long hard talk about whose name an investment property should go in – in other words you’ll need a pre-purchase. 

To be clear, and as I mentioned earlier, I’m not an accountant, financial planner or lawyer, merely a divorced woman whose been through this personally and a property buyer who sees way too many people asking me, “what’s next?” in a very sad time in their lives.

So, have fun building your portfolios and ALWAYS seek professional and personal advice, uniquely tailored to your situation before you sign on the dotted line.

Best of luck!

Elaine Davies

New Road Property

 To find out more either email me on Elaine@newroadproperty.com.au or read my book Mind Body Sold! HERE