One afternoon, Gary was driving home from work. As he approached his house, he noticed a pile of material on the footpath outside his property. The sort of scene you see after a flood, when all your water damaged furniture is dragged onto the footpath to be transported to the local tip!
Alarmed at what calamity had taken place, he quickly ran up to the house. As he approached the front door, he noticed a note pinned to the door:
“I’ve sold the house. It settled today. Good-bye. Susan”
Gary didn’t understand. He phoned Susan. No answer. The front door was locked. His key didn’t work. He walked around the back – same result.
Gary eventually learned that Susan, several months earlier, had discretely listed the property for sale with a real estate agent outside their local area. The property wasn’t marketed in the usual way, and inspections were arranged during business hours when Gary was at work.
Contracts were signed & eventually the settlement date arrived. That day, after Gary had left for work, Susan’s escape plan was executed with military precision, with all the furniture & effects she wanted loaded onto the furniture removalist’s van & driven away. Where; he didn’t know!!
Spare a thought for Gary !!
Asset protection is a great idea, but who are you protecting the assets from?
Susan was the sole owner of the property. The risks associated with Gary’s business and profession meant that he didn’t own any assets in his name. They didn’t want to run the risk of Gary being sued, and have their family home taken from them. Most assets are held in trusts and superannuation, however the family home will often be held in personal names due to the savings in transfer duty and capital gains tax.
Gary & Susan had an asset protection strategy to protect the family’s finances. An Alanis Morissette song comes to mind !
How could this have been avoided?
Gary could be a co-owner
Gary could have owned a 1% share of the property. When they purchased the property, both names could have been noted on the Contract. However, if Susan was already the sole owner, Susan would have had to agree to transfer a 1% interest in the property to Gary. If Susan didn’t agree, Gary would know that he needs to take some action.
An Accountant, Financial Planner or Mortgage Broker, if they were unaware of Gary’s story, might ask why an at-risk spouse would retain any interest in a property?
The reasons why can include:
- Protection against Susan selling the property & running off with the money
- All owners have to sign the Contract of Sale & the ownership transfer documents.
- Protection against Susan borrowing money from a bank & putting a mortgage over the property
- A mortgage cannot be taken out over a property without the consent of all owners, no matter how small their share.
- Easier finance arrangements
- The loan documents are simpler where both owners are the borrowers, as personal guarantees won’t be necessary.
Gary could be a Mortgagee
Another option is for Gary not to be a co-owner, but to hold a mortgage over the property. This means that the property could not be sold with Gary’s consent. When they purchased the property, Susan could have signed a mortgage in favour of Gary. However, if Susan was already the owner, Susan would have had to agree to sign a Mortgage in favour of Gary. If Susan didn’t agree, Gary would know that he needs to take some action.
What to do?
Even if you are living the perfect life with your partner, it just makes sense to co-own assets that you have purchased “together”.
If you transfer a share of a property to your partner, transfer duty will be paid (but calculated on only that share of the property’s value). Registration fees and legal fees are also payable. If your house was worth less than a million dollars, it’s likely that the whole process could be completed for about $1,000.
Gary had to spend tens of thousands of dollars, and hundreds of hours of wasted time, to get an inferior result, using the Family Court of Australia!
If the at-risk person (the business owner / professional) did get sued at a later time, then negotiations may be needed regarding a small payment for the 1% share of the property, but the partner’s 99% of the property is protected.
Something to think about. I wonder how Gary’s going?
Disclaimer: The above is to be considered as general education. This is not advice and it is not to be acted upon without advice from a qualified professional who understands your personal circumstances.
Copyright © 2017 Wockner Lawyers. All Rights Reserved. Contact Wockner Lawyers – [email protected]. This article may not be used without the prior written consent from the author. See below for more details…
DO YOU WANT TO USE THIS ARTICLE IN YOUR E-ZINE OR WEBSITE? You can, as long as you include this text copy in its entirety:
For assistance with your Property Law, Conveyancing and Retail and Commercial Leasing needs, contact Wockner Lawyers.