TIME TO RE-THINK PROTECTION STRATEGIES
by Jeannet McCrea
Traditionally, many businesses and professionals have utilised the time-tested strategy of putting the family home in the name of their spouse to protect their family home from creditors. This strategy was tested recently by the Australian Taxation Office (ATO) in the decision of Commissioner of Taxation v Bosanac (No 7)  FCA 249 (22 March 2021) (McKerracher J). As a result, many accountants, financial advisors and legal professionals are now advising their clients that simply transferring legal title is no longer ‘enough’ to provide full-proof protection.
In 2006, Mr & Mrs Bosanac purchased the family home for $4.5M. The $250,000 deposit was funded from a pre-existing joint bank account and the balance of funds from two loans held in joint names. Upon settlement, the title was transferred to Ms Bosanac as the sole registered proprietor, notwithstanding that the purchase was funded equally by both parties and both parties resided in the property. At some time after the purchase of the home, $3.6M was borrowed and secured against the mortgage of the home. The majority of the funds were used solely by Mr Bosanac to pursue his share trading activities. Mr & Mrs Bosanac separated in 2013 and both Mr & Mrs Bosanac continued to reside in the home until Mr Bosanac moved out in 2015, after which Ms Bosanac resided in the property alone. In 2016, the Federal Court entered a judgement against Mr Bosanac for tax debt of $9,344,111 plus costs.
Irrespective of Ms Bosanac being the sole registered proprietor, the Commissioner argued a ‘Presumption of Resulting Trust’ claiming that Mr Bosanac continued to hold 50% beneficial interest in the property. Presumption of Resulting Trust is where one party transfers legal title of property to another without gaining anything in return. Whilst legal title has been transferred it is presumed that the Transferee is holding title in trust on behalf of the Transferor. That is, the transfer is not intended as a gift.
On the other hand, Ms Bosanac argued that she held the benefit of ‘Presumption of Advancement’. Presumption of Advancement occurs where the transferor not only transfers legal title to the property without gaining anything in return to the Transferee but also transfers any beneficial interest they may have in the property. It is important to note that the Presumption of Advancement historically only recognises ‘gifts’ from husbands (as the Transferor) to their wife (the Transferee) and therefore can only be relied on in these circumstances.
Notwithstanding that the property was held in the name of Mrs Bosanac, in concluding that Presumption of Resulting Trust existed the Court considered the following:
- It would appear inconsistent for an individual to take on a such a substantial liability in respect of the property without at the same time acquiring a corresponding beneficial interest.
- Both parties contributed to the purchase of the property in that the deposit was met via funds held in a joint bank account and the balance from two joint mortgages over the property.
- The intention of the purchase – that is that shortly after purchase, the pair moved in to the property as their matrimonial home, therefore at the time of purchase, it was intended that the property would be for joint use and for the benefit of both.
- The court considered that aside of the intention at time of purchase, Mr Bosanac used the property to secure the sum of $3.6M to fund his share trading activities therefore, he received benefit of the property.
Although the above case draws on a set of specific instances regarding a creditor claim, it also has direct relevance and application to bankruptcy scenarios where the Transferor is Bankrupt and the Trustee is claiming entitlement to the property. The message from this case is clear in that even though there was no evidence to suggest that the transfer of title of the property was intended for the purpose of defeating or hindering creditor claims, so long as the Transferor continues to receive beneficial interest in the property, a Transferee is unable to effectively rely on the Presumption of Advancement.
Therefore, looking into the future for those who are planning on relying on Presumption of Advancement, it would now appear advisable that consideration be given to entering into a Deed at the time of purchase/transfer to confirm the intention of gifting the property and that the Transferor has no beneficial interest in the property. If possible, it may also assist to ensure that any mortgage repayments are made from the Transferee’s bank account.
For those now unsure where this Court decision leaves them, considering that for most people, the family home is their single greatest financial asset, if you haven’t already done so, a quick call to your trusted accountant, financial advisor or legal professional is a great starting point to ensure the protection of your family home.
Jeanette specialises in Personal and Corporate Insolvency and acts as Consultant of Condon Advisory Group.