Holding The Property In Spouse's Name: Is It Still Safe To Do So?
Updated: Oct 20, 2022
ASF TAKEAWAYS: The High Courts have tested the long-assumed position that assets held solely in the spouse's name would not be part of any creditor's actions against the risk-taker spouse. For now, the Court ruling has meant that this asset protection strategy remains viable, but certain steps to establish a presumption of advancement may need to be applied.
One of the central ideas of achieving asset protection with any business structure is to identify the risk taker and the asset holder in the family nucleus. The risk taker generally would be appointed as the director of the operational entities, and the asset holder would own the shares and be the controller of the family trust. The asset holder would also end up owning the matrimonial home predominantly or wholly in their name only.
In Commonwealth of Taxation v Bosanac (No 7)  FCAFC 158, the High Court unanimously allowed an appeal from the Full Court of the Federal Court of Australia deciding that the appellant (“Ms. Bosanac”) did NOT hold half of her interest in residential property (“the Property”) on trust for her husband, the second respondent (“Mr. Bosanac”). The Commissioner of Taxation ("COT") had audited Mr. Bosanac and who owed the Commissioner money for unpaid taxes – and the COT was seeking to establish that the matrimonial home was at least half owned by him, but the decision has kept the whole of the matrimonial home away from his asset pool.
WHAT WERE THE FACTS?
When the married couple were purchasing the Property for $4.5m in 2006, a $250,000 deposit was contributed from a joint loan account towards the purchase. Mr. and Ms. Bosanac then jointly borrowed $4.5 million to pay the balance of the purchase price, secured against the Property. The Property was registered in Ms. Bosanac’s sole name. Mr. Bosanac would later use the Property to secure borrowings of $3.6 million for other purposes.
In April 2016 (after Mr. and Ms. Bosanac had separated), the COT obtained summary judgment against Mr. Bosanac for approximately $9m, plus costs. In 2019, the COT sought a declaration as to Mr. Bosanac’s interest in the Property, to facilitate recovery.
PRESUMPTION OF ADVANCEMENT AND RESULTING TRUSTS!
In this instance, the Courts interpretation of presumption was of particular relevance;
1) The first presumption concerns resulting or presumptive trusts. A declaration of trust may be presumed where two parties contribute to the purchase price of the property, but legal title to the property is put only in the name of one of them.
It is presumed that there was a declaration of trust as it was intended that the person holding legal title would do so for both contributors (or that the purchaser did not intend to gift his or her contribution to the other person). This creates a beneficial interest for the husband.
2) The second is the presumption of advancement. Where it applies, the presumption of advancement operates to prevent a resulting trust from arising because the relationship between the relevant parties provides a reason against presuming a trust. The presumption operates on the hypothesis that, because a certain relationship exists between two parties, a benefit provided by one party to the other at the cost of the first was intended to be provided by way of “advancement” (gift).
The presumption of advancement is particularly significant where there may be little evidence available to establish the husband’s intentions at the time of the purchase.
The presumption is antiquated because it only applies from a husband to his wife, and not to de facto partners, same-sex couples, or from a wife to her husband.
USING THE PRESUMPTION OF ADVANCEMENT TO PROTECT PROPERTY
Any individual who has the potential of facing bankruptcy needs to protect their assets from the trustee-in-bankruptcy or from creditors. In essence, this individual should make themselves as unattractive a target as possible for creditor actions - if the creditors cannot recoup their monies, it is likely they will not incur significant legal costs to pursue you.
This is particularly relevant for the matrimonial home. One of the ways of protecting this asset may be via the presumption of advancement. However, to rely on this presumption it is essential that the husband can show:
he is making a gift of the property to his wife,
he has no beneficial interest in the property and,
if he is a joint borrower on the purchase loan, he has no rights of contribution against his wife in respect of the loan and the mortgage.
These attestations are often made via a deed. The mortgage payments should also ideally be paid solely from the wife’s income. Finally, in any subsequent financial documents, any disclosures made should be consistent with the wife being the sole beneficial owner of the property.
Other ways of protecting property from the trustee, or creditors, include:
Purchasing the property in one name,
Reducing equity in the property by utilising strategies such as gift and loan back trusts, or
Establishing a discretionary trust — Whereby ownership of the matrimonial home falls under the trust, rather than an individual.
When it comes to business structuring and asset protection strategies, there is no one-size-fits-all solution and must be continuously reviewed for the prevailing family and business dynamics.
The team at ASF pride itself on providing real solutions when it comes to business structuring and asset protection.
We will be happy to assist.