Financial abuse can follow victims long after relationships end. Australian experts are calling for reform

Women will often try to start sorting out the financial mess; but this only confirms – in the eyes of lenders and tax collectors – that they are legally responsible for the debts.

What the victim really needs to do is find professional help and contest their appointment as a director or guarantor.

“We suspect that a lot of victims historically have entered into bankruptcy because they were unable to pay these amounts,” said Dal Pra.

“If they have a home, they can lose it. Then they are on the bankruptcy register permanently, which impacts their ability to obtain a rental property and apply for finance.”

Even if the venture does not collapse, there can be grave consequences for the abused partner. Some perpetrators set up structures to reduce their own liabilities so that it appears the partner receives dividends or other payments, although the money never gets to them.

The victim will be hit with a tax liability, or, if the structure is hidden from them, they can be penalised for not disclosing income they never received.

The arrangements also impacts family assistance payments.

“Where we have financial abuse, there are almost always other forms of family violence taking place in terms of emotional, psychological and physical,” said Dal Pra.

“There never seems to be justice for the perpetrator, or real justice for the victim.”

Kate, who was helped by EACH and received pro bono legal help, was successfully removed as a director, which removed her liabilities for company taxes and various penalties. Caveats were also removed from her home.

Game over

Financial control can be exerted over anyone, with elderly parents at risk of abuse from their adult children and children at risk of being used by their parents to take on unnecessary directorships – and with it, liabilities.

But in the case of couples, it is almost always used against women, with the debts following the recipient long after the relationship has ended.

Ann Kayis-Kumar, an associate professor and founding director of UNSW’s tax and business advisory clinic, said that women who leave abusive relationships generally do so with “sexually transmitted debts”.

She said most continue experiencing economic abuse even after escaping the relationships, and many cite financial instability as a key reason driving them back to their abusive partners.

Kayis-Kumar said the pandemic had shone a spotlight on financial abuse, and legal protections now needed to catch up.

“The question is … is it appropriate that the law can be mobilised by perpetrators? The perpetrator gets away with no liability, but can weaponize the tax system to further abuse.”

In a forthcoming academic paper, Kayis-Kumar and her co-authors argue there are lessons to be learned from the United States, which has had a form of “innocent spouse relief” embedded into its tax system for decades.

The US recognises economic abuse in tax legislation and the IRS directs employees to consider whether someone is subject to financial abuse when weighing a person’s eligibility for relief.

This differs from Australian tax processes, where relief is usually only granted on grounds of serious financial hardship. The twist in the Australian tax provision is that if the person is already in hardship, and relief from the tax debt will not alleviate it, then the debt will stand.

“The hardship provisions are so counterintuitive,” said Kayis-Kumar.

“If they’re already in hardship, and they’ve also got a tax debt, it’s sort of game over.”

In Australia, there is a new cohort of financial abuse victims dealing with issues that were magnified by the early pandemic years. Tax debts significantly increased during the pandemic, almost doubling in a four-year period to $50.2bn, which has triggered a ramp-up in collection activity now weighing on victims.

At the same time, the Australian Taxation Office (ATO) has resurrected decades-old debts to be extracted from future tax refunds as part of a new scheme that has been likened to the ill-fated robodebt compliance program.

The ATO said in a statement there are a range of factors it takes into account when determining whether it is appropriate to grant relief from a tax debt.

“Where a taxpayer is experiencing serious hardship, they may qualify to have some, or all of their tax debt released,” the ATO said.

Kayis-Kumar said there is a danger that debts are extracted just when survivors are getting back on their feet financially.

“This type of debt that the perpetrator put in their name can seemingly come out of the woodwork and that’s systemic abuse,” said Kayis-Kumar.

In their paper, Kayis-Kumar and her co-authors cite a case study of a single mother of four with a $20,000 tax debt accumulated through a family partnership she had limited involvement in.

The woman, who separated from her abusive husband, was unable to get the debt cancelled and declined to go through an appeals process fearing she would further upset her children or aggravate her former partner.

The paper describes any action to extract that debt from future tax refunds as a “particularly perverse outcome” that shows how those subject to financial abuse suffer ongoing financial consequences for the actions of their abusive former partners.

Source: Guardian