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Legal Tip 84: Caveats on property owned by Spouses

Discussion in 'Legal Issues' started by Terry_w, 8th Oct, 2015.

  1. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    One strategy that I advise clients on is the strategy of acquiring properties in single names with, sometimes, no financial contribution by the non owner to the purchase. The purpose of these strategies are to enable investor families to borrow more, provide asset protection and/or to provide for the various tax strategies that could be utilized now or in the future - spousal loans, spousal transfers, minimising tax on sale etc.


    One disavantage for the non owner is the loss of control. If A and B are spouses and B purchases a property in B’s name only then B can do many things without the consent or even knowledge of their spouse A, such as:

    • sell the property

    • mortgage the property

    • increase loans against the property

    • gift the property to someone else either while alive or after death

    • have their will disputed or attacked

    There is an ability to lodge a caveat over property to protect the interest in the property of non legal owners. Caveats can only be lodged, or be maintained, by someone with a caveatable interest in the property. To have a caveatable interest in the property you have to have made some sort of contribution or have some sort of contractual rights with the owner.


    But where someone has not made any contribution they generally would not have a caveatable interests. If you contributed funds to the deposit or ongoing mortgage payments then you would, but being totally separate from the transaction you probably would not.


    This is confirmed in a recent NSW Supreme Court case Carmen Ho v Lorenz Derek Austin Ebert [2015] NSWSC 1468 https://www.caselaw.nsw.gov.au/decision/5614503be4b0517a97281472


    The judgment cites another case Choi v Kim [2013] NSWSC 1774


    So when assessing whether to implement such strategies you also need to assess the likelihood of your spouse running off with the property - which should not be much of an issue if they have paid for it without your help.
     
  2. larrylarry

    larrylarry Well-Known Member

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    Yep!
     
  3. Joynz

    Joynz Well-Known Member

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    Both the properties referred to in the judgement were purchased prior to the marriage.

    I wonder if the case may have been different if they had been purchased afterwards. (I note that the judgement suggests that the case could be pursued in the federal circuit court.)

    Not related to the judgement, but it sounds like the male spouse may have been significantly older than the female spouse judging by her statement that she had done a course on caring for seniors!
     
    Last edited: 23rd Jul, 2016
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  4. Scott No Mates

    Scott No Mates Well-Known Member

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    @Terry_w If you have a caveatable interest, do your debtors have any ability to persue you for your interest in bankruptcy?
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Depends on the nature of the interest but yes.

    The classic case is where the main residence is purchased in the non working spouse's name with the deposit and the loan repayments coming from the working spouse.

    Trustee's in Bankruptcy will argue that the owner is acting as trustee for the non-owner - for 50% usually.

    See
    Legal Tip 22: Buying a property in the name of 1 spouse for asset protection reasons https://propertychat.com.au/community/threads/legal-tip-22-buying-a-property-in-the-name-of-1-spouse-for-asset-protection-reasons.1221/

    Legal Tip 106: Resulting Trusts Legal Tip 106: Resulting Trusts

    Legal Tip 108: What is a Constructive Trust? Legal Tip 108: What is a Constructive Trust?
     
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  6. larrylarry

    larrylarry Well-Known Member

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    Caveatable interests do not discriminate. Whether before or after marriage. A friend who helped out with deposit has a Caveatable interest but it has to be described properly.

    If a married couple decides to separate and divide assets, it will be done in federal circuit court. Caveats can be removed and orders made to prevent either party to deal with the property when property is to be sold.

    If the Caveatable interest is questionable, you can issue a lapsing notice and the battle begins.