What's the best way to protect the family home from claims by creditors and the Trustee in Bankruptcy?
Many professional people, company directors and business owners put the title to the family home in their spouses' name, to put it out of reach of creditor claims.
But does this provide effective protection against a bankruptcy claim by the Trustee in Bankruptcy?
According to a Federal Court of Australia decision last week, the family home may not be protected even if the title is not in the name of the bankrupt.
Applying what is known as a common intention constructive trust, the Federal Court said that the Trustee in Bankruptcy can claim an interest in the family home if:
- A common intention existed between spouses / partners to buy the home as their matrimonial home / place of residence; and
- The bankrupt made a contribution to the costs of acquisition or improvements or maintenance.
The interest the Trustee can claim is proportionate to the contribution.
Is it possible to defeat that claim? The answer is yes: if the bankrupt has good legal advice, they may be able to find a way around the common intention and contributions traps when buying the family home, and protect it from the Trustee in Bankruptcy.
For my case note on that decision, in which the home owner was successful in protecting the family home from the Trustee in Bankruptcy, click