contingent tax liability owed at separation
The recent case of Cosentino v. Cosentino has an interesting treatment of contingent tax liabilities owing at separation. The decision confirms the willingness of courts to discount even tax liabilities where, at the date of separation, they are uncertain. In the Cosentino case the tax liability did not exist at the date of separation, but arose after.
Justice Perkins wrote:
It would be stretching the meaning of “liability” to include an obligation that arose later, merely because it was calculated in relation to a year when the parties were still living together. Not only had the reassessment not come into existence on the valuation date, but also there was no suggestion that it was coming. Taking a financial snapshot of the husband on that date, no one would have suggested he was subject to any contingent liability for income tax.
The decision once again confirms the approach of valuing contingencies prospectively. The approach requires looking at the circumstances that were in existence at the date of separation rather than in hindsight.