Protecting the Family Home
Posted on April 28, 2022
Business persons, company directors and professionals such as doctors, lawyers, accountants, engineers and architects are always at risk of being sued and of losing their assets to meet any successful claims.
Strategies to protect the assets of these “at risk” persons that have been employed for many years include structuring the ownership of assets, particularly the family home, in the spouse of the at risk person.
In Commissioner of Taxation v Bosanac [2021] FCAFC 158, the Full Court of the Federal Court of Australia cast serious doubts on the effectiveness of such strategies. The basic facts in the case were as follows:
- Mr Bosanac was in business and at risk of insolvency.
- In 2006, Mr Bosanac’s wife bought a residential property for $4.5M which was paid for in part by a deposit of $250,000 paid from a joint account in the names of Mr and Ms Bosanac and the remainder from new bank loans obtained by Mr and Ms Bosanac as borrowers. The property became their home. The property was registered in Ms Bosanac’s name solely.
- Mr and Ms Bosanac lived in the home until September 2015 when they separated.
- The Commissioner of Taxation obtained judgment against Mr Bosanac for tax liabilities in April 2016 for over $9M plus costs.
- The Commissioner of Taxation sought a declaration that Ms Bosanac held half of the property on trust for Mr Bosanac.
- The Bosanacs succeeded before a single judge of the Federal Court, but the Full Court decided against the Bosanacs. In reaching that decision, the Court had to decide whether there was a presumption of a gift from Mr Bosanac to his wife (the presumption of advancement) or whether a resulting or presumptive trust applied because Mr Bosanac contributed to the purchase price of the property. There was an absence of evidence in respect of the Bosanacs’ intentions in the context of Mr Bosanac’s contributions to the acquisition of the matrimonial home and the decision turned on the inferences that the Court drew from the facts, namely that:
- Mr Bosanac would not have assumed a substantial liability of the loan without the benefit of acquiring any beneficial interest in the property.
- The objective facts, together with the inferences properly drawn from those facts, led to the conclusion that Mr Bosanac did not intend that his contribution to the purchase of the matrimonial home be by way of gift to Ms Bosanac. Rather, it should be inferred from the facts that he and Ms Bosanac intended that Mr Bosanac would have a 50% beneficial interest in the property.
- Mr Bosanac would not have assumed a substantial liability of the loan without the benefit of acquiring any beneficial interest in the property.
Therefore, the Court did not apply the presumption of advancement – effectively the presumption was rebutted by the facts and inferences drawn from them.
In the light of this case, it is clear that to protect the family home in such arrangements, the at risk spouse should not provide funds or borrow to acquire the property in the spouse’s name. In many situations that will not be feasible.
In our view, it is best to create a documentary record at the time of acquisition of a property that any contribution by the at risk person is clearly a gift to the other spouse so that the presumption of advancement is more likely to apply.
In our experience, people have varying levels of comfort about entering into such arrangements and decisions should be made after advice is obtained and the advantages and disadvantages considered.
