If you own an investment property, shares or a business that has grown in value, capital gains tax in family law is one of the first things worth understanding before you agree to a property settlement. CGT in family law is rarely a simple accounting exercise. It turns on whether a sale is genuinely likely, who will actually pay the tax, and whether the evidence proves the claimed figure.
Key Takeaway:
A court does not deduct prospective CGT simply because an asset has appreciated. It is more likely to allow a deduction when it orders a sale or considers a sale inevitable. The same applies when a sale is probable in the near future and the court can reliably calculate the liability. Where a sale remains speculative, the court usually values the asset in full. It then addresses the tax risk separately. This framework was set out by the Full Court in Rosati and Rosati in 1998. Later Full Court decisions continue to apply it when considering prospective tax assumptions.
For separating couples in Sydney and across NSW, this is not academic. A disputed CGT claim can materially change the net property pool, particularly where the estate includes long-held property, companies or substantial shareholdings.
Three questions about CGT in family law
CGT in family law usually raises three separate questions. Many disputes go wrong when the parties conflate them.
Is a CGT event actually triggered?
A transfer may qualify for rollover relief when a court order, consent order or qualifying financial agreement causes it. If the statutory conditions apply, the relief defers the tax rather than eliminating it. An informal division of assets does not qualify.
Should the liability be recognised now?
This is the Rosati question. It depends on sale likelihood, the valuation method used, and the evidence of intention.
How should it be reflected?
Options include a deduction from value, an indemnity between the parties, or a contingent order that only operates if a sale later occurs.
Rosati and Rosati: the governing framework
Rosati and Rosati [1998] FamCA 38 remains the foundation of capital gains tax in family law practice. The Full Court’s reasoning
The Full Court reported its reasons at (1998) FLC 92-804, page 85,043. The unreported AustLII version does not number the propositions separately. It was held that several matters determine whether CGT should affect an asset’s value. They include the valuation method, the likelihood of a foreseeable sale, the acquisition purpose and the parties’ evidence of intention. A court will generally allow a deduction when it orders a sale or finds that one is inevitable. It may also allow a deduction when a sale is probable soon or the parties acquired the asset solely for resale. Where sale represents only a risk, the court may weigh that risk as a discretionary factor instead.
Later applications of Rosati
Blake and Blake [2007] FamCA 10 confirmed at [25] that the Rosati considerations guide the court’s discretion. They do not create a rigid formula. The husband’s plan to retain his investment property long-term, without a real sale plan, weighed against a deduction. In Pfenning and Snow [2016] FamCA 29, the Court refused an immediate quantified deduction for a company-held commercial property. No sale was in prospect before a lease that would expire years later. That refusal differs from the judgment’s broader review of other authority. When a liability is real but has not crystallised, a contingent order may provide the fairer mechanism. Such an order operates only if and when the liability arises. We return to that mechanism below.
Who actually owes the CGT?
The question is not just how an asset is held. It is what transaction the proposed orders actually require, and which taxpayer incurs the resulting liability. The court must identify the actual transaction and taxpayer before calculating any allowance. It is one of the more common, and more expensive, mistakes in a CGT claim to skip this step.
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Marlin and Henson and Shehu and Vicario: the current position
Two recent Full Court decisions show how rigorously the Court applies this requirement. In Marlin and Henson [2025] FedCFamC1A 71, the Full Court noted the husband’s argument from [27]. He said the Court should deduct roughly $3.3 million in CGT from investment properties. He claimed that he intended to sell them within three to five years. At the same time, he opposed orders that would require their sale. The refusal to deduct the claim was upheld by the Full Court: a stated future intention to sell carries little weight when the party resists the very orders that would bring a sale about.
Shehu and Vicario
Shehu and Vicario [2026] FedCFamC1A 49 addressed a different question. It concerned whether the Court should discount an established liability, rather than whether it should recognise CGT. The deceased husband’s estate held a $105 million shareholding. The surviving shareholders had resolved to wind up the company and sell its assets. That valuation was discounted by the primary judge. The judge assumed that rollover relief might become available if the shareholders divided the shares between themselves. At [79], the Full Court allowed the estate’s appeal. The shareholders had already chosen a course inconsistent with rollover relief. No evidence suggested that they would depart from it.
At [67], the “certainty and immediacy” language from Marlin and Henson was applied by the Court. As a practical comparison, the two decisions share a common thread. This comparison does not formally extend the Rosati test. Any assumption about a future sale or tax concession needs evidence of what the relevant party will actually do. Legal possibility alone is not enough.
When CGT in family law is more or less likely to be recognised
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These issues are not confined to real estate or to modest estates, as the scale of the estate in Shehu and Vicario shows. One risk worth flagging separately: where a valuation already reflects an entity-level tax liability, applying a further personal-level deduction for the same gain can double-count it. The correct treatment depends on the valuation methodology used and the transaction the orders actually propose.
Why capital gains tax in family law claims fail
Prospective CGT claims commonly fail for several distinct reasons. The evidence may make the liability too speculative. The claimant may identify the wrong transaction, or the valuation may already account for the tax. The claimant may also provide incomplete figures. Evidence for a credible claim
The following material generally supports a credible claim:
- the acquisition contract and settlement statement
- stamp duty and other acquisition costs
- capital improvement records, kept separate from repairs
- ownership history and any changes in legal or beneficial ownership
- any depreciation schedules
- capital losses, including in a related entity
- the proposed sale date and estimated selling costs
- the current valuation report, the instructions given to the valuer, and whether its assumptions already reflect the tax
- confirmation that the tax modelling matches the orders actually being sought
What to ask your accountant
What transaction have you assumed — a sale, a transfer, or continued ownership? Who is the taxpayer? What sale date and price have you used, and why? Does the valuation already reflect the tax, or does your figure sit on top of it? Have you assumed rollover relief or another concession is available, and on what basis? Which records are still missing?
Managing uncertain liabilities
Many matters sit between “sale now” and “no sale ever.” Where retention is genuine but not guaranteed, the parties have several options. They may deduct actual CGT from proceeds if a sale later occurs. They may use an indemnity, a time-limited default sale order or a later adjustment once the true liability is known. Pfenning and Snow refers to this type of contingent mechanism. The right mechanism is whichever is workable and fair, not an all-or-nothing assumption.
Family lawyers advise on how CGT in family law may affect a property settlement. They also advise on the orders needed to reflect it. An accountant or tax lawyer will usually calculate or confirm the tax figure. The right answer always depends on the individual facts.
Businesses, shares and CGT in family law matters
A business or shareholding raises the same three questions as an investment property, but the transaction matters even more. Business valuations and tax assumptions
Tax law treats a sale of underlying business assets differently from a shareholder’s sale of shares. A valuer may already have included an assumed future tax liability in a family law valuation. A separate deduction on top of that valuation may therefore double-count the same gain. Parties should not assume that small-business CGT concessions apply. Their availability depends on detailed statutory conditions. These include the relevant turnover or net-asset threshold, active-asset requirements, ownership periods and the particular concession claimed. Those conditions must be checked by the parties and their advisers. Expert evidence on a business or shareholding should identify the assumed transaction. The figures may assume an asset sale, a share sale or continued operation. Each assumption produces a different tax outcome and may change how capital gains tax in family law affects the settlement.
A practical capital gains tax in family law example
Consider a couple who have jointly owned an Inner West investment property for 18 years. The property has a substantial unrealised gain. The husband wants to retain it, but his ability to refinance depends on obtaining additional funds that he does not yet have. The parties propose a 12-month refinancing period, followed by a default sale if he cannot complete the refinance. An accountant models the CGT position using three possible sale dates and different assumptions about disputed improvement costs.
Orders during the refinancing period
This situation is genuinely uncertain. A time-limited default sale mechanism, combined with an indemnity, offers a realistic option. However, the orders must resolve the practical issues that arise during the refinancing period.
Who will receive the rent and pay the mortgage, rates and repairs? Will the transfer attract rollover relief? How will the parties calculate and adjust the indemnity if the eventual sale price differs from the accountant’s assumptions? Who will control the sale process if the refinancing deadline passes? How will the orders deal with any later capital growth or loss?
Choosing the right mechanism matters, but the orders must also address these practical details.
Legislative context for capital gains tax in family law and CGT in family law
Reforms commencing 10 June 2025 restructured the property provisions of the Family Law Act 1975 (Cth). Section 79(5) now covers matters previously considered as “section 75(2) factors” for married couples. Those matters include the contingent tax risk discussed above. The corresponding provisions under section 90SM apply to de facto couples. The amendments did not expressly displace the Rosati approach. Current submissions about prospective CGT and future tax risks should be framed within this restructured statutory pathway.
Conclusion
Capital gains tax in family law property proceedings turns on evidence and the actual orders sought, not on labels. Rosati and Rosati set the framework in 1998. Blake and Pfenning and Snow show how a lack of sale evidence defeats a claim. Marlin and Henson and Shehu and Vicario confirm the Full Court’s approach into 2026. Persuasive evidence of sale likelihood and any claimed tax concession is required by the Court.
How we can help with capital gains tax in family law
Consort Family Law has more than 25 years of experience exclusively in family law, including complex property pools involving companies, trusts and business interests. If your settlement involves an investment property, business interests or shares with an unrealised gain, a consultation will typically cover several matters. The proposed balance sheet is reviewed, and the relevant taxpayer is identified. We compare the accountant’s assumptions with the orders you propose and identify any expert evidence you still need. You do not need the final tax figure before seeking advice. Contact our Sydney family law team for a confidential consultation, and bring existing valuations, refinancing correspondence and purchase records.
Frequently asked questions about CGT in family law
Is CGT always deducted from an investment property in a divorce?
No. The court looks at whether a sale is likely and whether the liability is reliably quantified, not simply whether the asset has grown in value.
Is CGT treated differently where the court orders a sale?
When the court orders a sale, or the parties agree to sell, the court more commonly treats CGT as a real realisation cost. It then includes that cost in the figures rather than treating it as a speculative future liability.
Does transferring an asset between spouses trigger CGT?
Potentially not immediately. Rollover relief may apply when a court order, consent order or qualifying binding financial agreement causes the transfer. If the statutory conditions apply, it defers the tax rather than removing it. An informal, private division of assets does not qualify. Where rollover applies, the receiving spouse broadly inherits the transferor’s relevant cost-base history. The detailed tax rules for that asset still apply. The receiving spouse pays tax on an eventual disposal.
Can CGT affect a business valuation, not just an investment property?
Yes. A business or shareholding can carry the same latent tax issue, and a valuation may already account for it. Ask whether the expert’s figures assume a sale of assets, a sale of shares, or continued operation, since each changes the tax outcome.
Can an assumed tax concession, like rollover relief, reduce a valuation?
Only where real evidence shows that the party will take the necessary steps. Shehu and Vicario confirms that a court should not discount a valuation for a hypothetical concession after the party has chosen a different course.
Can CGT be addressed after final orders are made?
Well-drafted contingent orders can deal with a later sale. However, correcting an overlooked tax position becomes difficult after the court makes final orders. Raise it before settlement.
By Catherine Heath, Fellow of the International Academy of Family Lawyers (IAFL), Principal Solicitor at Consort Family Law, a boutique family law firm in North Sydney. Catherine has practised exclusively in family law for over 25 years. She regularly advises clients on complex property settlements involving family trusts, discretionary trusts, and multi-generational business structures.
This article provides general information about how capital gains tax is treated in family law property proceedings. It is not legal or tax advice, and the right approach always depends on your individual circumstances. If you are facing a property dispute involving issues of CGT, contact Consort Family Law in North Sydney for a confidential consultation — call (02) 7252 0444.
Cases
- Rosati and Rosati [1998] FamCA 38; (1998) FLC 92-804
- Blake and Blake [2007] FamCA 10
- Pfenning and Snow [2016] FamCA 29
- Marlin and Henson [2025] FedCFamC1A 71
- Shehu and Vicario [2026] FedCFamC1A 49
Legislation
- Family Law Act 1975 (Cth), s 79
- Family Law Act 1975 (Cth), s 90SM
- Income Tax Assessment Act 1997 (Cth), s 126-5
