litigation question for couple

[s0805]

Had a very interesting discussion about the litigation process with my friends.

My friend has IPs on her names only and that is how she wants it to
be....one of main reason she mentioned that her partner works in particular industry where he is likely to get sued compare to her work.....discussion at the table was that will not make any difference as if someone decided to go sue her partner they can eventually go after her and her properties as well
(cause he is married to her)

thoughts??

 

[Aaron_C]

Since when can you sue someone's spouse for money when they have done nothing wrong?

 

[Simon]

Doesn't he have insurance to cover litigation?

 

[jackbak]

You cant sue a spouse because their partner is in debt.

 

[SOP]

I have heard of a number of builders who keep their assets in their partners name.

Assuming to cover themselves if they are required to declare bankruptcy.

 

[RPI]

Unless it was a sham or alter ego arrangement then unlikely. Family Court is a whole different story

 

[Terry_w]

Yes there are ways that she can be attacked.

Who provided the funds to purchase the properties? Deposits and loan repayments.

Say the husband paid for some, it could be argued that she is acting as trustee for him (constructive trust). This happens all the time in bankruptcy matters. often the bankrupt is deemed to own 50%.

 

[NatMerc]

Yes there are ways that she can be attacked.

Who provided the funds to purchase the properties? Deposits and loan repayments.

Say the husband paid for some, it could be argued that she is acting as trustee for him (constructive trust). This happens all the time in bankruptcy matters. often the bankrupt is deemed to own 50%.

This is true but in my experience very very rare, we've had thousands who have gone bankrupt but only a couple of instances where we have been able to pursue the spouse and this has always been because they have transferred property to the spouse's name when they could see litigation looming.

 

[Terry_w]

NatMerc

Yes, would be very rare.

Here is a case for an example of what could happen.
Official Trustee in Bankruptcy and Brown [2011] FMCA 88
the property was registered in the sole name of the non-bankrupt spouse. The Court ordered that the wife receive 67% of the net proceeds of sale and that the trustee receive the balance. The trustee had sought a 50%/50% division. The reliance by the court on equitable principles and the determination of those interests is perhaps consistent \with the approach that can be expected following Stanford.

 

[Pete Ramoza]

It is extremely rare but if the litigant is willing to, they can take the non-bankrupt spouse too.

 

[Terry_w]

It is extremely rare but if the litigant is willing to, they can take the non-bankrupt spouse too.

This is a broad statement. In Australia each spouse is a separate legal person and one is not responsible for the debt of the other. This is not the same in other countries. In Japan for example spouses can be liable for the other's debts.

There are only a few ways this could happen
- constructive trust as I outlined above.
- personal guarantees
- transfers to defeat creditors
- under market value transfers
- uncommercial transactions such as options and leases.

This is all I can think of off the top of my head.

 

[alexlee]

- transfers to defeat creditors

Terry, is there a legislative time limit (minimum) for a transfer NOT to be considered a transfer to defeat creditors? Or is there a burden of proof to prove that at the time the transfers took place the person is solvent?

 

[Aaron_C]

Terry, is there a legislative time limit (minimum) for a transfer NOT to be considered a transfer to defeat creditors? Or is there a burden of proof to prove that at the time the transfers took place the person is solvent?

It's the latter.

 

[Terry_w]

Terry, is there a legislative time limit (minimum) for a transfer NOT to be considered a transfer to defeat creditors? Or is there a burden of proof to prove that at the time the transfers took place the person is solvent?

No time limt.

There are 2 ways a transaction like this can be attacked.
1. At the state level, in NSW the Conveyancing Act has provisions under s37A
http://www.austlii.edu.au/au/legis/nsw/consol_act/ca1919141/s37a.html

2. At the commonwealth level, Bankruptcy Act s 121
http://www.austlii.edu.au/au/legis/cth/consol_act/ba1966142/s121.html

This is why you should never transfer property for 'asset protection' reasons. Also becareful with communications such as emails etc, especially to non-lawyers. At least with a lawyer you may be protected by lawyer client privilage.

Of course if therere is a company involved then you have the corporations Act to consider as well.

 

[Terry_w]

It's the latter.

Have a read of s121.

 

[s0805]

Yes there are ways that she can be attacked.

Who provided the funds to purchase the properties? Deposits and loan repayments.

Say the husband paid for some, it could be argued that she is acting as trustee for him (constructive trust). This happens all the time in bankruptcy matters. often the bankrupt is deemed to own 50%.

Terry, they both deposit their income in the offset account attached to PPOR which is not on husband's name and husband's name is not on the offset account
as well. This is the account where all the expenses and income for IP and everything else gets credited and debited.

She has no property related account in her husbands's name....just one joint account where they have some money.....but something i found today is that she has kept her husband as secondary account holder for her cedit card (i.e. one credit account but two separate cards for both of their usage)....CC in her name only....this could be used against them?

 

[s0805]

This is why you should never transfer property for 'asset protection' reasons.

Terry, if you transfer the property to your spouse....given at the time of the transfer none of the couple has any litigation issues....would you still have the same opinion as above......

I am thinking of transferring property to my spouse once it will become +geared as she will be working part time at most in future.....

 

[Terry_w]

Terry, they both deposit their income in the offset account attached to PPOR which is not on husband's name and husband's name is not on the offset account
as well. This is the account where all the expenses and income for IP and everything else gets credited and debited.

She has no property related account in her husbands's name....just one joint account where they have some money.....but something i found today is that she has kept her husband as secondary account holder for her cedit card (i.e. one credit account but two separate cards for both of their usage)....CC in her name only....this could be used against them?

Is the husband's deposit a gift or a loan? If a loan it is always his money. If a gift then the money will be subject to the clawback provisions of the bankruptcy Act s119 from memory.

Or the offset account could be deemed to be held on trust for the husband.

Credit card is a loan.

 

[Terry_w]

Terry, if you transfer the property to your spouse....given at the time of the transfer none of the couple has any litigation issues....would you still have the same opinion as above......

I am thinking of transferring property to my spouse once it will become +geared as she will be working part time at most in future.....

Yes, clawback provisions apply. But as time ticks on it will become safer.

I should add, it also depends on how you transfer - gift, undermarket value or full market value and how the transaction is structured - payment received?

 

[s0805]

Is the husband's deposit a gift or a loan? If a loan it is always his money. If a gift then the money will be subject to the clawback provisions of the bankruptcy Act s119 from memory.

Or the offset account could be deemed to be held on trust for the husband.

Credit card is a loan.

Terry, they haven't thought abt if husband's money is loan or gift. It is just the way they want it to structure....It is surely not loan as there is no agreements between them....only option left is gift....how would they know that husband's is gifting money to partner as part of PPOR.....

Again there is no written agreement of this arrangement to be either gift or loan

Yes, clawback provisions apply. But as time ticks on it will become safer.

can u pls elaborate what u mean by clawback provisions.....is there any specific time frame for to be worry free...