With divorce rates on the rise in Australia, Chris Wallis, CTA, Victorian Bar, highlighted the dynamic between family lawyers and tax practitioners, stressing the significance of a tax practitioner knowing one’s client and calling for transparency and ethical conduct within the profession on day two of The Tax Summit 2023.

MELBOURNE 7 September 2023: When faced with a potential marital or relationship breakdown, tax is often the last thing on a person’s mind. However, on day two of The Tax Summit 2023, Chris Wallis, CTA, Victorian Bar stressed the importance of considering the tax implications in these, oftentimes, emotional situations while urging tax practitioners to call out the “bad behaviour” of fellow professionals. 

Wallis said, “Calling out a fellow practitioner is not an easy thing to do. I’ve done it myself a couple of years ago. And there were a lot of sleepless nights and a few kilograms gained, chowing down on TimTams in the late evening as I dealt with the distress and trauma of doing that.”

According to the Australian Bureau of Statistics (ABS), the Australian divorce rate stands at 2.2 per 1,000 Australian residents. In 2021, more than 56,000 divorces were granted in Australia, an increase of 13.6 per cent from 2020. As structures evolve over time and are usually established with little or no consideration of the possibility of divorce, Wallis said the issue of divorce is a critical topic that will impact the clients of all SME practitioners at some point.

Below are the highlights from his session: Session 14.1: Divorce and taxes — who keeps what?

Family lawyers versus tax practitioners

There’s an interesting dynamic between family lawyers and tax practitioners, Wallis pointed out. Namely, “Family lawyers tend to believe that tax agents wouldn’t know conflict if it hit them between the eyes” and tax practitioners think, “Family lawyers don’t know anything about tax and yet, ignore our tax advice”.

What’s important to remember in this dynamic as a tax practitioner is, Wallis said, “Unless you have a legal duty to do so, you must not disclose any information relating to a client's affairs to a third party, including a family lawyer, without your client's permission.”

Tax practitioners must operate within strict bounds, Wallis pointed out, saying, “As a tax agent, you have a lot of constraints, as do family lawyers. You have the Tax Practitioners Board on your shoulder. You have the APESB (accounting professional and ethical standards board), and the client obligations that flow from that. You also have your engagement letter and what it says about handling conflicts of interest. At the same time, you have your professional indemnity insurance policy considerations too. So that’s your straitjacket.”

The importance of knowing your client

It is only in rare circumstances that the family lawyer will also be your client, Wallis said. And it’s vital to know who your client is. To help, he recommended asking yourself the following:

• With whom is your engagement letter?
• From whose pocket are your fees being paid?

Understanding this, Wallis said, will help when family lawyers come “jumping up and down” demanding tax practitioners give them what they want when they want it.

Calling out family lawyers who don’t comply

He asked, “Has anybody ever looked at the rules and regulations for family lawyers? They’re fascinating. Rule 12, which deals with legal costs in a Family Law matter, demands they be fairly reasonable and proportionately incurred. 

“I know of a matter where the two parties had made 27 applications to the court. They had run up $660,000 in fees. They spent $660,000 fighting over $900,000, and they still hadn’t gotten to a hearing. What the hell’s going on?”

“[...] what has to happen is the family lawyer has to lodge with the court before each application or each event in the matter, a statement or affidavit of the costs that have been incurred and how much of those costs have been paid for each party. So the information about the costs is always going to be there. 

“I understand that some family lawyers routinely don’t comply, but no one calls it out,” he said.

He continued: “A family lawyer’s duty to the court is paramount. That duty to the court must prevail over any duty to the client. For example, fabricating evidence may be in a client’s interest, as it may increase the client’s chances of succeeding in the claim. But a lawyer, as part of the duty to the court, cannot provide false evidence. The family lawyer cannot be a puppet for the client.”

When it comes to mediation, Wallis shared a similar sentiment along the theme of calling out a fellow practitioner, saying, “If the defendant lawyer is screwing around your client by not preparing properly for mediation, you have the obligation as a tax practitioner looking after your client’s best interest to call it out. Call out the practitioner.”

Family lawyers: “You need tax advice” 

Wallis also urged all family lawyers to direct their clients to get independent tax advice: “Family lawyers need to tell their clients, ‘You need tax advice. I can’t give it because I’m not that good. But you need it.’”   

He also pointed out that family court rules don’t provide a tax practitioner with a right to view documents, emphasising that a court order is needed.

He continued: “Most firms were reporting that 90 to 95 per cent of the time they were acting for both parties. Now, there’s absolutely nothing wrong with that, but you need to have adequate arrangements in place to manage tax conflicts of interest that may arise.

“There’s a really high likelihood that a tax agent is going to have a conflict of interest when a relationship breaks down. When you resolve the conflict of interest, you need a new fee engagement because now, if you’re acting for both, you must ensure you’re getting paid for both. And you might also come to the conclusion that you can’t act for both.”

Final advice: “Don’t become the frog in boiling water”

Wallis concluded his discussion, saying, “Tax agents, like family lawyers, are a mixed bag. Some good, some bad. Before you start assisting a family lawyer to fabricate evidence, think about it: What’s the risk? What’s the reward? Is it worth saying yes to the request? What’s the long-term cost? 

“It’s easier to call out [bad behaviour] earlier than later. Don’t be the frog in the boiling water. When you first work out that the family lawyer is not performing, call it out then. It’s much easier than doing it the day before mediation.” 

The Tax Summit 2023

With a theme to ‘Spark Change’, the Tax Summit 2023 had an inspiring line-up of the nation's most forward-thinking minds, including Karen Payne, CTA, Inspector-General of Taxation and Taxation Ombudsmen; David Thodey, AO, Chair of Xero, Director and Chair in waiting at Ramsay; Australian Sporting Legend Kevin Sheedy; and many more. Held at the Melbourne Convention and Exhibition Centre (MCEC), The Tax Summit 2023 brought together taxation specialists, lawyers, accountants, newcomer tax professionals and business leaders as well as anyone with an interest in the latest issues impacting businesses on a local and global scale. 

The Tax Institute is the leading forum for the tax community in Australia. It is committed to furthering tax education, representing its members and continuously improving the tax system for the benefit of all. For more information on The Tax Summit and its line-up of more than 70 expert speakers, covering topics including economics, property, business, global tax developments and technology, please see the full program. 

About Chris Wallis

Chris Wallis, CTA, Victorian Bar has over 30 years in practice during which time, there have been many mundane matters but Chris’ reputation has been made by achieving satisfactory outcomes for the matters that have found their way into a practitioner’s “too hard basket”: providing technically complex advice work, particularly in relation to trusts and real estate; working with family lawyers to trace assets and identify tax exposures in a relationship breakdown; working with clients to resolve long and difficult disputes with revenue authorities by systematically identifying the evidence required to meet the relevant burden of proof. Chris is a regularly published author on tax and superannuation issues and is a member of the Editorial Board of the Australian Tax Law Bulletin and has presented for each of the professional bodies in all states, in all on more than 100 occasions, and also for the Tax Bar Association, the late Gordon Cooper’s Problems in Practice and the Television Education Network.