Asset Protection - Is Your Home Really Safe?

Asset protection often involves putting the title to the family home in the name of a spouse so that, if the other spouse faces financial threats, the home is safe. Recent court decisions have cast doubt on the effectiveness of this strategy.

Traditional asset protection

Some occupations are well-known for involving financial risk, such as engineering or building. However, Covid 19 has shown us that anyone in business can be hit by unforeseen financial threats.

Where a person is at risk through their occupation or for any other reason, protecting the family home is usually a top priority. In many cases, it is the husband whose lifestyle is exposed to most financial risk. In that case, it is common to seek to avoid that risk by putting the home in the name of the wife, assuming her lifestyle does not involve similar risk.

The Cummins case

In times gone by, some high earning barristers had a simple technique for avoiding paying tax. Each year, when they received their tax bill, they simply went bankrupt. As the family home was held in the name of their spouse, it was unaffected.

Around 20 years ago, this scam received wide media publicity, and a claim against John Cummins QC went all the way to the High Court. The court found that the home had been put into the wife’s name for the specific purpose of avoiding creditors. Accordingly, even though the home had been in the wife’s name for a number of years, the husband still had an interest in it which the trustee in bankruptcy could take to pay creditors.

Over the last 20 years, it was generally considered that this case was somewhat unique and did not apply to the general asset protection procedure of having the house in the spouse’s name.

The Bosanac case

Mr Bosanac went bankrupt, owing a large amount of tax. The $4.5 million home in which he and his wife lived until their separation had always been in his wife’s name. The Full Court of the Federal Court ruled that Mr Bosanac was a 50% owner of the property and that his interest was available to the trustee in bankruptcy.

It was all about the intention of the parties, as shown by their conduct. The $250,000 deposit came from a pre-existing loan in joint names, and the husband use the property as collateral for his share trading business.

Don't panic – asset protection still works

In most cases, it would be difficult for a trustee in bankruptcy to prove that the bankrupt spouse was the beneficial owner of a home in the other spouse’s name. Cases like Cummins and Bosanac are rare. Mr Cummins won in the Federal Court and only lost when he was taken to the High Court. Mr Bosanac's big mistake was acting like an owner, including arranging bank loans on the property. 

Holding property in the name of a trust also gives good asset protection. However, the family home is subject to capital gains tax and landtax unless it is in the name of a person living there. So, putting your home in the name of a trust or a company is not a good idea.

Holding property in the name of a spouse who is not at risk is still a very good precaution. However, you need to avoid doing anything to show that this ownership is not genuine. A document signed at the time of acquiring the property which declares that it is beneficially owned by the spouse would certainly be a step in the right direction. Even signing a document subsequently would help.

For more information  contact Tim Somerville  or Andrew Somerville on (02) 9923 2321.



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