Taxation of employee share schemes in a property settlement

Person image

Recognising the appropriate taxation on employee share scheme interests can have a significant affect on the matrimonial asset pool.

The decision in Eakins & Higgins (2021) FamCA 330 is a pertinent reminder of how employee share schemes are dealt with by the Family Court and under what circumstances they are included in the matrimonial asset pool.

Read here our article on Eakins & Higgins.

Irrespective of whether you have been granted shares, options or restricted stock units and regardless as to whether those interests are unvested or vested, unexercised or exercised or available for sale only during trading windows all such share scheme interests will be subject to enquiry in a property settlement under the Family Law Act 1975 (Cth).

The taxation issues to take into account when preparing the matrimonial balance sheet when share scheme interests are involved and the subsequent division thereof can include, but are not exclusive to:

  • assessing whether there is any future tax payable on any unvested or unexercised interests that have been included on the matrimonial balance sheet and calculating such tax accurately. Any such future tax may reduce the net value of those interests that are recognised.
  • if there is a contemplated disposal of any employee share scheme interests, determining whether any future taxation satisfies the tax recognition principles for family law purposes as set out by Rosati & Rosati (1998) FamCA
  • considering whether there has been any historic invocation of market value reset cost base or market value substitution rules in respect of the share interests, as it may affect the contingent tax exposure.
  • evaluating the potential impact of foreign exchange revaluations when determining market value and taxation implications of any share scheme interests that are denominated in a foreign currency.
  • Consider whether the sale of any share parcels are afforded the benefit of being discount capital gains, if, inter alia, the holding period criteria has been satisfied.
  • when the sale of share interests are being contemplated or otherwise ordered to be sold in satisfaction of a family law property settlement, identifying which parcels of shares should be sold in order to minimise capital gains tax.

There are many tax issues to address when dealing with employee share scheme interests in a property settlement under the Family Law Act. Proper assessment of the necessary issues is required in order to accurately determine an accurate family balance sheet and to minimise taxation.


You may also be interested in:

Employee Equity Plans

Participating in an employee equity plan can have significant consequences for your taxation, cash flow and overall wealth.

This guide has been borne from our first-hand experiences of advising clients on the tax and cash flow consequences of their employee equity plans. The purpose of this guide it to hopefully serve as an invaluable resource when you commence your employee equity plan journey and ongoing in managing the tax and cash flow issues that you may encounter.

Tax and Cash Flow Guide for Employees
Employee Equity Plans

About the Author

Dean Crossingham

Dean is an Accountant and Tax Adviser who provides specialist tax services in relationship separation and divorce matters.

He provides expert guidance in navigating the tax consequences of a relationship breakdown. This includes expert tax advice on the division of relationship assets, property settlement tax structuring and negotiation support as well as ongoing accounting and tax services post property settlement.

Dean Crossingham