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

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.

 

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.

 

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

 

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

 

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

 

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

 

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.

 

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

 

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?

 

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.

 

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

 

What about the interest? burglers and fire?

 

Some relevant quotes from a recent case where a Chinese nation fled the country owing millions to the ATO. Had a very expensive property in the name of his spouse who was a 'housewife':

58 A freezing order is also sought against Mrs Huang under r 7.35(5). It relates only to the Mosman property. The Deputy Commissioner submitted that she has a reasonably arguable case that Mr Huang has a beneficial interest in the Mosman property on a resulting trust, where there is a proper basis to infer that Mr Huang contributed a significant part (in excess of $6 million) of the monies used by Mrs Huang to purchase the Mosman property. The basis for the argument is that the Mosman property was purchased unencumbered in the sum of $12,800,000. Yet Mrs Huang described her occupation as “housewife” and her declared annual income at the time of purchase was less than $100,000.

59 Where a husband makes a purchase in the name of his wife, there is a presumption that a resulting trust arises in his favour: Calverley v Green (1984) 155 CLR 242 at 247 (Gibbs CJ). Where both husband and wife contribute to the purchase, then in the absence of evidence to the contrary it is presumed that they intended to be joint beneficial owners, regardless of whether the purchase is in their joint names or the name of one only. This is an application of the same principle: see Pettitt v Pettitt [1970] AC 777 at 815 (Lord Upjohn), cited with approval by Mason and Brennan JJ in Calverley at 259.

60 Furthermore, in Trustees of the Property of Cummins v Cummins (2006) 227 CLR 278 at [71] the High Court accepted the following proposition:

Where a husband and wife purchase a matrimonial home, each contributing to the purchase price and title is taken in the name of one of them, it may be inferred that it was intended that each of the spouses should have a one-half interest in the property, regardless of the amounts contributed by them.

From a recent case
Deputy Commissioner of Taxation v Huang [2019] FCA 1537
Deputy Commissioner of Taxation v Huang [2019] FCA 1537

 

Here is another relevant case
Commissioner of Taxation v Bosanac (No 7) [2021] FCA 249
Commissioner of Taxation v Bosanac (No 7) [2021] FCA 249 (22 March 2021)

EQUITY – presumption of advancement – whether the presumption of advancement applies to the matrimonial home – whether the presumption has been rebutted – where both spouses contribute equally to the purchase of the matrimonial home through joint loans – where title is placed in the wife’s name only – where the Commissioner of Taxation seeks a declaration as to the husband’s beneficial interest to satisfy judgment debt – consideration of whether Trustees of Property of Cummins (a bankrupt) v Cummins (2006) 227 CLR 278 qualifies the presumption of advancement

...

CONCLUSION

[Paragraphs 229 and 230 (numbering changed when copied and pasted]

1. Given that Cummins does not preclude the ‘presumption’ of advancement from arising where the transaction involves the matrimonial home, and on the basis of long standing authority, I consider that the ‘presumption’ of advancement arises in Ms Bosanac’s favour. The Commissioner has not adduced evidence sufficient to rebut the ‘presumption’.
2. In considering all of these circumstances both individually and cumulatively, I do not consider the evidence adduced is capable of supporting an inference that Mr Bosanac intended to retain a beneficial interest in the Dalkeith Property. The ‘presumption’ of advancement stands unrebutted.

 

Sheesh, that case referred to a lot of other cases.

It would be good resource to refer back to - like someone had done all your homework.

Interesting that the second respondent was represented pro bono!

 

Commissioner of Taxation v Bosanac (No 7) [2021] FCA 249
Commissioner of Taxation v Bosanac (No 7) [2021] FCA 249 (22 March 2021)

This case was appealed in the High Court and the decision has been reversed. The ATO lost.

See
Bosanac v Commissioner of Taxation [2022] HCA 34
https://eresources.hcourt.gov.au/downloadPdf/2022/HCA/34