ASSET PROTECTION – Protecting your family home

24 January 2022

There have been a number of recent developments that have impacted the future structuring of asset ownership particularly for business owners. It is now timely to review structures and succession planning from a practical perspective to ensure your assets are protected.

What has become evident is asset protection considerations in isolation without appropriate estate planning isn’t adequate and leaves you exposed. This is the first of an ongoing series of 5 articles on this topic.

Article 1 – Protecting your family home

Article 2 – Asset protection lessons for Small to Medium Enterprises

Article 3 – Who should be Trustees, Appointors, Shareholders and Directors?

Article 4 – Update on use of a corporate beneficiary/ bucket company

Article 5 – Is the change in control of trusts as you actually intend? 

Protecting your family home

A recent decision of the Full Federal Court has brought into question the effectiveness of a common asset protection strategy employed by many Australian families.

It has been a wise strategy to split spouses into the ‘at-risk’ spouse and the purportedly ‘risk-free’ spouse. So that the at-risk spouse, being a Director, Professional or Business Owner, is focussed on running their businesses and building wealth, whilst the family’s assets reside in the name of the risk-free spouse as a protection against creditor claims.

As part of this approach, this involved registering legal title of the family home in the name of the ‘low-risk’ spouse.

Recent comments from the Full Federal Court of Australia have highlighted that the simple act of legal registration is, of itself, insufficient to prevent claims from the creditors of a ‘high-risk’ spouse.

While the strategy is not without merit, ‘high-risk’ individuals who wish to protect the family home should review the extent to which this strategy may assist them in their asset protection objectives and employ further steps at the outset to protect the family home.

Case Background

The recent upheaval in this area of the law has stemmed from the Full Federal Court’s decision in Commissioner of Taxation v Bosanac [2021] FCAFC 158. In this case the Australian Taxation Office (ATO) was successful in recovering a tax debt owed by Mr Bosanac against his former family home, despite that home being legally registered in the name of his ex-spouse.  

Mr and Mrs Bosanac purchased the $4.5 million home in 2006 using a jointly owned deposit of $250,000 and a joint loan facility. Despite the contributions from both spouses, Mrs Bosanac was registered as the sole legal proprietor of the property.

During the period of ownership, the couple resided at the property. In addition, Mr Bosanac used the property to secure loans of some $3.6 million for his share trading activities. Following the couple’s separation in 2015, Mr Bosanac left the property while Mrs Bosanac continued to reside there.

While trying to recover outstanding tax liabilities owed by Mr Bosanac, the ATO argued that 50% of the beneficial interest in the home was held on trust for Mr Bosanac’s benefit and therefore, accessible to the ATO in the settlement of his debts. 

Mrs Bosanac argued that the ‘presumption of advancement’ applied such that any contribution to the property made by Mr Bosanac was in effect a non-recoverable gift to his spouse.

Court Findings

The Full Federal Court determined that:

1. Mr Bosanac’s decision to incur a significant loan liability was inconsistent with an intention to gift the property to Mrs Bosanac; and
2. The fact that Mr and Mrs Bosanac purchased and used the property as their matrimonial home indicated that it was for their joint use and benefit.

As a result, the Court determined that the ‘presumption of advancement’ was rebutted and that Mrs Bosanac held 50% of her interest in the property on trust for Mr Bosanac.

Such a finding is significant as it shows the Courts willingness to rebut the presumption of advancement when the factual scenario before the Court does not indicate that a gift was intended to be made.

Based on this case it is a reasonable inference that a husband, in the scenario who has contributed substantially to the purchase of a matrimonial home would not do so, for no beneficial interest in the property whatsoever.

What does this mean for you?

The key takeaway from this case is that simply registering legal title to the family home in the name of a low-risk spouse may not be effective in protecting that home from future creditors.

Those that wish to ensure their family home is protected from potential creditor claims must consider their reliance on the ‘presumption of advancement’ and, where possible, should ensure that the circumstances of their purchase or transfer point toward the contributions of the ‘high-risk’ individual being a genuine gift to the ‘low-risk’ spouse.

In addition, consideration should be given as to whether the application of this judgement could be applied to broader asset protection and estate planning objectives as to whether ownership of any other assets could be protected from potential creditor claims in a more effective manner.

Implementing strategies to reduce the risk to the family home

Placing the matrimonial home in the name of the low-risk spouse is still considered a worthwhile asset protection strategy despite the Full Federal Court’s view in Bosanac.

However, certain actions could be taken at the time of purchase of the property, such as entering a deed of gift which confirms:

• The high-risk spouse is making a gift of the property to the low-risk spouse;
• The high-risk spouse has no beneficial interest in the property; and
• If the high-risk spouse is a joint borrower on the purchase loan, they have no rights of contribution against the low-risk spouse in respect of the property and the mortgage.

Dealing with ownership of existing property is more complicated due to transfer costs like stamp duty and compromising the main residence exemption. The course of action will be dependent on your particular situation.

• It maybe still be prudent to put in place legal documentation which states your intention regarding contributions that have been made or will be made into the family property.
• Gift and loan back strategies.

Contact the Author:

If you would like to understand the above measures in further detail, please contact the authors of this article.

This newsletter is current as of 24 January 2022, however, please note that announcements and changes are being made by the Government and the ATO regularly, and we expect that the tax and business-related responses will continue to evolve.  Before acting upon the content of this newsletter, please contact us to discuss how the above applies to your specific circumstances.

This information is general advice only and neither purports, nor is intended to be advice on any particular matter.
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