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Legal tip 22: Buying a property in the name of 1 spouse for asset protection reasons

Discussion in 'Legal Issues' started by Terry_w, 10th Jul, 2015.

  1. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Buying a property in the name of 1 spouse for asset protection reasons


    A common asset protection strategy is for a couple to buy the main residence in the name of the spouse least at risk of becoming bankrupt. The idea is if the other spouse, the the risk taker, ever becomes bankrupt then the house will be safe.


    The house will certainly be much safer from creditors in this situation, but it will not be unattackable because it could be argued that the spouse that owns the house owns 50% or more of it as trustee for the risk taker spouse.


    This argument will be strong if the safe spouse is a non working stay at home spouse while the risk taker is the money earner. The risk taker may have contributed the deposit to the property, she or he may be on the loan (even though not on title) and he or she may pay the loan repayments in part of in full. There is a rebuttable presumption that a person paying for a property is the beneficial owner (Resulting Trust).


    Therefore the courts will be open to find that a resulting trust or a constructive trust exists for the risk taker spouse, even though no formal trust deed has been established. This means that if the risk taker were to become bankrupt a trustee in bankruptcy could potentially take part of the house - 50% usually, but potentially more.


    To make the asset protection stronger make sure all the loan repayments are paid for by the owner spouse and not the non owner. This may be hard to do if the owner has no income. It may be possible to divert income to the owner spouse through trusts, employment etc, or gifting (but gifts will be subject to claw back on bankruptcy for at least 4 years).


    This is a simple asset protection strategy which costs virtually nothing to implement.
     
    PacMan, Wukong, OC1 and 1 other person like this.
  2. Meisterin

    Meisterin Member

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    Thanks Terry.

    You give me a lot to think about.

    1. Investing with family via unit trust or company.

    2. Asset protection in terms of having completely separate income and repayment by one spouse.

    3. Possibly having TT created through our will to pass any assets to our surviving children.

    And at the same time keep things simple so that I don't have to go through paperwork trying to understand how everything is woven together.
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    There are heaps of strategies which cost virtually nothing to implement.
     
  4. D.T.

    D.T. Adelaide Property Manager Business Member

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    I think there's more advantages of buying in one name, land tax and serviceability
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Definitely more advantages
    1 estate planning
    2. land tax
    3 borrowing
    4. asset protection on loan default
    5. tax advantages - both income and CGT
    6. Planning - can choose which property to sell so the minimum taxes are paid
    7. spousal loans
    8. spousal sale/purchase
    etc
     
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  6. Junior

    Junior Member

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    Hi Terry or others,

    If the risk-taker's income is required, in order to qualify for the loan....how should this be structured? Both members of the couple work, but will need both incomes to qualify. This is a future risk-taker, i.e. is currently just an employee.
    • Property in spouse name, loan in joint names
    • Property 99/1
    • Property in spouse name, loan in spouse name with risk-taker as guarantor. Perhaps guarantee could be removed in future?
    • Other??
    This is a PPOR, first home. Once loan is established, spouse's income would be enough to meet the repayments, but only just.

    Thanks
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Hi Junior

    I cannot advise you on how it should be structured, but you will get some ideas from my legal and tax tips.

    For asset protection against potential future creditors of the risk taker it would be best if he/she was not a legal owner, nor a beneficial owner. Going on the loan should be avoided if possible. A guarantee may offer more protection if you can set it up that way. The non owner should also never pay for anything associated with the property.

    But this is only one thing to consider out of many. what about spousal loan strategies, spousal sale, asset protection from dealings, asset protection on death, family law etc etc.
     
  8. The Y-man

    The Y-man Moderator Staff Member

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    The biggest risk would be "safe" spouse walking out with everything?

    Must ensure he/she is *very* well looked after.:)

    The Y-man
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Or just dealing with the property
    - dying and leaving it to someone else
    - mortgaging it
    - leasing it
    - selling it
    etc
     
  10. Junior

    Junior Member

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    Thanks guys for the thoughts.

    I was under the impression that whether assets are owned individually or in joint names is not so important in the event of relationship breakdown. Isn't everything generally split in half in this case?
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    That is not the case.
    See s79 of the family law act.

    They look at contributions by the parties (amounts other things) - both financial and non-financial.

    If you are not making any contributions then it could work against you.
     
  12. Yson

    Yson Well-Known Member

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    Or if it is possible to keep borrow so that the net assets stay minimal? N put the cash under the bed?
     
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    What about the interest? burglers and fire?