It is not uncommon in marriage breakdowns, particularly in cases where one partner owns a business enterprise, for the estranged spouse to make allegations in respect to their ex-partner’s fraudulent use of cash from that business or incorrect accounting practices.
The estranged spouse is aiming to discover a higher turnover of profit, which would translate to a higher valuation of the business.
But proving the fraudulent accounting practices may backfire for the spouse making the allegation if it leads to a tax department audit. An audit may result in a sizeable taxation bill that could decrease the size of the matrimonial asset pool available for distribution between the parties.
In the case of Pisani [2012] FMCA 532, the wife alleged that the husband had engaged in fraudulent tax evasion during the course of their marriage. She reported to the Court that the husband regularly brought home boxes filled with cash and hid them around the home. She also claimed to have evidence of fraudulent book entries for employees who did not exist. She sought an order that her evidence be provided to the Deputy Commissioner of Taxation for review.
The husband denied the wife’s allegations. The Court found that it did not need to find that a party was guilty of fraud, tax evasion or some other criminal offence prior to making the referral to the Deputy Commissioner of Taxation. The Court was satisfied that there was prima facie evidence of the fraud and held that where tax fraud or evasion is disclosed in evidence, the Court has a duty to notify the tax department of their findings.
An order was made to provide copies of the wife’s affidavits and a transcript of her oral evidence to the Deputy Commissioner of Taxation, along with a copy of the reasons for judgment. The Court then adjourned the Family Law proceedings until the Deputy Commissioner of Taxation informed the parties whether an investigation into the business’s accounting practices would be needed.
Mark Streeter, Principal at Streeterlaw, said the case isn’t clear about whether the Court has a duty to refer all spousal allegations to the taxation department.
“The Court’s decision appears to be based on there being sufficient evidence to warrant a referral,” Mr Streeter said. “Nonetheless, it is wise for anyone wishing to make allegations of tax evasion in a family law dispute to consider the possible ramifications in terms of a reduction to the property pool for distribution.”
For more information or Family Law advice, please contact one of Streeterlaw’s experts on 8197 0105 or send an email to advice@streeterlaw.com.au
