Does putting the family home in the wife's name protect it from creditors?

A simple asset protection strategy used by many businesspeople and professionals is to put the family home into the wife’s name to protect it from creditors and the Trustee in Bankruptcy.

The effectiveness of this asset protection strategy was recently tested by the Australian Taxation Office in the decision of Commissioner of Taxation v Bosanac (No 7) [2021] FCA 249 (22 March 2021) (McKerracher J).

The facts in Bosanac

Mr and Ms Bosanac were married on 3 October 1998.
Mr Bosanac described himself as a ‘self-styled venture capitalist’. He was a ‘sophisticated businessman who appreciated the significance of the name in which real property is held’.
On 3 May 2006, Ms Bosanac’s offer of $4,500,000 was accepted to purchase 82 Phillip Street, Dalkeith, in Perth Western Australia. She paid the deposit of $250,000 from a joint bank account. The house was purchased while under construction.
On 3 November 2006, the purchase was settled and the title to the property was transferred into the name of Ms Bosanac as sole registered proprietor. The property became the matrimonial home of Mr and Ms Bosanac and their three children.
The purchase price was fully funded by two new joint loans from Westpac Bank, one of $3,500,000, the other of $1,000,000. The loans were secured over the Dalkeith property, and over other property they owned. The deposit was refunded out of these loans.
Mr and Ms Bosanac resided together in the property until mid-2015, when Mr Bosanac moved out (they had separated earlier, in about 2013).
Lurking in the background was the fact that Mr Bosanac had not lodged tax returns for seven years from 2006 to 2013. After a tax audit, the Commissioner issued a notice of assessment on 16 June 2015.
On 12 August 2016, the Federal Court entered judgment for a tax debt of $9,344,111.89 plus costs against Mr Bosanac.

Did the presumption of advancement arise?

Ever since Kingdon v Bridges (1688) 23 ER 653, it has been the law that the “presumption of advancement arises where a husband makes a purchase in the name of his wife, or makes a contribution to the purchase price but does not take legal title that reflects that contribution”.

If the presumption of advancement arises, the asset purchased in the wife’s name is considered to be a gift by the husband and the husband has no beneficial interest in it.

If the presumption of advancement does not arise or is rebutted, the wife holds part or whole of the asset purchased in trust for the husband. That is, the husband retains a beneficial interest under what is known as a resulting trust to the extent of his contribution.

In this case, the Commissioner was looking to establish that Mr Bosanac had an equitable interest of a one half share in the family home so as to recover the tax debt from it.

The Commissioner argued that the presumption of advancement did not arise, or that if it arose the presumption was rebutted and Mr Bosanac retained a beneficial interest in the property, in these circumstances:

“the Dalkeith Property was the matrimonial home of Mr and Ms Bosanac, it being purchased in late 2006 after which they resided there together for a period of more than seven years;
Mr Bosanac’s contribution to the purchase price took the form of borrowed funds from Westpac and those funds were borrowed on the condition that Ms Bosanac would register a mortgage in favour of Westpac over the Dalkeith Property to secure the loan funds;
both Mr and Ms Bosanac were jointly and severally liable to pay the entirety of the funds advanced and it follows that Mr Bosanac assumed a very substantial liability in contributing to the purchase without the benefit of having his name registered as a proprietor on the title; and
there is evidence of shared back accounts and some sharing of other property assets.”

It is important to note that no evidence was presented to the Court that Mr Bosanac intended to retain an interest in the home at the time it was purchased or at any time afterwards.

Nor was there any evidence of intent to defeat creditors. The Court noted: “No suggestion has been raised that the Dalkeith Property was registered in the name of Ms Bosanac with a view to Mr Bosanac avoiding meeting commitments to creditors with equity in that property.”

The Court rejected the Commissioner’s arguments and concluded:

“In considering all of these circumstances both individually and cumulatively, I do not consider the evidence adduced is capable of supporting an inference that Mr Bosanac intended to retain a beneficial interest in the Dalkeith Property. The ‘presumption’ of advancement stands unrebutted.

The notion that a husband is to be presumed to gift property to his wife, while the same will not be presumed of a wife to husband, between same sex spouses, or between de facto partners, may grate with modern ideals and expectations of equality.

But as things currently stand the ‘presumption’ of advancement remains part of Australian law even for the matrimonial home. It is not for a judge sitting at first instance to depart from such long-standing legal concepts.”

The Court therefore dismissed the Commissioner’s application for a declaration that: Ms Bosanac held 50 per cent of her interest in the Dalkeith Property on trust for Mr Bosanac.

Comments and conclusions

The presumption of advancement applies only to assets transferred to a married woman or a woman engaged to be married. It does not apply to assets transferred to a husband, if for example, a wife purchases a property in the name of a husband.

Between married couples or de facto partners, the presumption of advancement is supplanted by the Family Law Act 1975 (Cth), s 79, and in the state Property (Relationships) Acts. Under those Acts, a married person or de facto partner can claim an interest in assets which are not in their name.

An interesting feature in Bosanac case was that they used joint loans to fund the purchase of the family home but purchased the home in the wife’s name only. Mr Bosanac was therefore liable to repay the loans. This did not rebut the presumption of advancement.

The Court was influenced by the fact that for land under Torrens Title the name recorded on the titles register is the taken to be the legal and beneficial owner of the property and that if someone else has an interest, they can register a Caveat. In this case, Mr Bosanac had never claimed a beneficial interest in the property and never registered a Caveat.

The conclusion is that the presumption of advancement remains an effective asset protection strategy for a husband against creditor claims by the Australian Taxation Office, customers, clients and the Trustee in Bankruptcy, provided that there is no suggestion that the husband retains a beneficial interest in the property and there is no intention to defeat creditors by purchasing an asset in the wife’s name.

Note: Before applying this strategy, check that the appeal process in Bosanac has been exhausted, as this is a decision by a trial judge which is likely to be appealed all the way up to the High Court of Australia, given the size of the tax debt and the value of the home.