Over the past few weeks, we have had a steady increase in clients asking a very specific question in separation matters:
“Do the proposed negative gearing and tax changes affect what I should do with my investment property in the settlement?”
The short answer is that the Federal Budget changes are not yet law. However, they are already influencing how separating couples are thinking about investment properties and family trusts when negotiating property settlements.
In practice, this is becoming less of a tax question and more of a settlement strategy question.
“It’s worth what?” – Where most negotiations start
We are increasingly seeing separating couples with at least one investment property acquired during the recent growth cycle, often between 2020 and 2023, where values increased rapidly but borrowing capacity has tightened since separation.
On paper, these matters often look balanced. In reality, the position changes quickly once we assess refinancing capacity, post-separation cash flow, and tax exposure.
A property that looks like a “clean asset split” at market value can become a very different proposition when one party is required to hold the debt alone, or to take on all of a CGT debt.
This is where many clients are caught off guard.
The Budget announcements in context
The 2026 Federal Budget included proposed reforms to negative gearing and capital gains tax settings for residential investment properties, as well as proposed changes affecting the taxation of discretionary trusts.
These measures are still proposals and may change before implementation. They do not currently alter how family law property settlements are determined.
However, they are influencing how clients and advisers are assessing risk, particularly where one party is retaining an investment property as part of a settlement and people are contemplating alternate ways of structuring their property settlement.
In other words, the law has not changed yet, but expectations about the future have.
A scenario we are seeing regularly
A common scenario we are dealing with involves couples who own multiple investment properties, often purchased at different times and under different lending conditions.
One property may have been acquired pre-interest rate rises, while another may have been purchased more recently under tighter lending criteria.
Although the equity position may appear similar, the long-term holding position can be very different once you factor in borrowing capacity after separation, interest rate sensitivity, and potential changes to tax treatment.
This becomes particularly important where one party is retaining an investment property and assuming it will remain “self-funding”. In practice, that assumption often does not hold once the household income structure changes.
Family trusts are increasingly in focus
We are also seeing more separation matters involving discretionary family trusts, particularly where they have been used as part of long-term investment or business structuring.
One recurring issue is that clients assume trust assets sit outside the property pool. That is not necessarily correct and, more often than not, they are included.
In practice, we are often required to examine who controls the trust, how distributions have been made during the relationship, and whether the structure has been used to accumulate or direct family wealth.
The proposed tax changes relating to trusts have also added uncertainty for some clients who are trying to understand what ongoing income or tax outcomes might look like post-settlement.
Why this matters in real settlement negotiations
We often explain to clients that a property settlement is not simply about dividing what exists today, it is about dividing financial outcomes into the future.
Two settlements that appear equal on paper can look very different once each party is holding assets independently.
The questions we are regularly working through with clients include:
- Whether the retaining party can realistically refinance;
- Whether the investment property remains sustainable on a single income;
- What future tax exposure may arise on sale; and
- Whether trust income or control is likely to change after separation.
These issues frequently have more impact on outcome than the headline asset value itself.
Our approach
In matters involving investment properties, companies or family trusts, we are increasingly working with clients alongside their accountants or financial advisers to test the real-world implications of proposed settlements before anything is finalised.
In our experience, the most costly mistakes tend to arise where parties agree to retain assets based on market value alone, without properly stress-testing what those assets will look like once the financial relationship between the parties has ended.
That step is often where outcomes are either protected or compromised.
Disclaimer: This article provides general information only and does not constitute legal or taxation advice. The Federal Budget measures referred to are proposed only and subject to legislative change. Each matter depends on its own facts and independent legal and financial advice should be obtained before making decisions about property settlement.
If you would like to book a time to speak with one of our family lawyers for confidential, early advice, click here to get started online https://lynnandbrown.settify.com.au or contact us by calling 08 9375 3411.
About the Author: This article was authored by Sarah Ihab, Sarah is one of our family lawyers at Lynn & Brown, known for her commitment to achieving outcomes that are not only legally sound but also commercially beneficial for her clients. She takes a pragmatic approach to legal issues, combining careful analysis with a strong understanding of the broader business and personal implications of her advice. She completed her Bachelor of Laws (Honours) and Bachelor of Arts in Global Politics and Policy with Murdoch University in March 2023, her Graduate Diploma in Legal Practice with the College of Law in May 2023 and was admitted as a Lawyer of the Supreme Court of Western Australia in October 2023.
