Protecting your family home against creditors06 April 2021 Authored by: Kate Hearnden and Graham Roberts | Topics: Insolvency and restructuring, Litigation and dispute resolution
The presumption of advancement is commonly used as a means of protecting the family home against creditors.
In a recent Federal Court decision, the wife was the sole registered owner of the home. The Commissioner of Taxation had a significant judgment against the husband and sought to enforce the judgment against the home.
The Commissioner argued that there was a presumption of resulting trust and that the husband had a 50% beneficial interest in the home.
The wife, relying on the presumption of advancement, successfully claimed a 100% beneficial interest in the home.
A presumption of resulting trust can arise in various circumstances, for example where:
- a person purchases property in the name of another, or in their joint names but the other person contributes none of the purchase money
- the purchase money is contributed by two persons jointly, but the property is registered in the name of one person only.
In the absence of evidence of a contrary intention, a resulting trust arises in these circumstances because it is presumed that the person who contributed to the payment of the purchase price did not intend to gift their contribution to the other person.
However, the law has historically recognised certain relationships, such as marriage, where it is presumed that the husband intended to gift the property to his wife. This is known as the presumption of advancement. The presumption is antiquated because it does not apply to de facto partners, same sex spouses or where the gift is from the wife to the husband.
Depending on the circumstances, there can be tension between the application of the two presumptions.
Commissioner of Taxation v Bosanac (No 7)
In summary, the core facts were:
- the husband and wife jointly obtained a bank loan to purchase the home that was secured by a registered mortgage over the property
- when the property was purchased, the wife was registered as the sole owner
- they also borrowed further monies secured by the mortgage that was purportedly used by the husband to conduct share trading
- they resided in the home for several years
- they had shared bank accounts
- there was some sharing of other property assets
- no suggestion was made that the wife was registered as sole owner with a view to the husband avoiding creditors.
Asserting a resulting trust, the Commissioner argued that the husband had a 50% beneficial interest in the home because he had contributed 50% of the purchase price as joint borrower under the home loan.
The wife argued that the presumption of advancement applied and that, on the facts, the Commissioner had failed to establish there was a resulting trust.
The Commissioner contended that the presumption of advancement does not apply where it is a matrimonial home, or alternatively, was rebutted by evidence of the husband’s intention at the time of purchasing the property.
In Bosanac, the Court outlined the following principles:
- Although it is referred to as a ‘presumption of advancement’, the dominant approach in Australia is that it is strictly not a presumption.
- Rather it is a description of certain circumstances, being the existence of particular relationships, where the presumption of a resulting trust does not arise.
- The presumption of advancement can apply to the matrimonial home.
- Where a husband has gifted property to his wife, the person asserting a resulting trust will need to rebut the presumption of advancement by providing evidence of the husband’s actual intention to retain a beneficial interest in the property.
- Generally, the court will look to the dealings, documents and communications at the time of the purchase to determine whether there was intention to retain a beneficial interest. However, evidence of the dealings between the parties after the time of purchase may be a relevant factor.
As a starting point, the facts in Bosanac gave rise to the presumption of advancement that operated to preserve the legal status quo in favour of Mrs Bosanac. To rebut the presumption, the Commissioner had the onus of establishing that Mr Bosanac intended to retain a beneficial interest in the property to the extent of his contribution to the purchase price.
In Bosanac the husband did not give evidence. He did not make any submissions on the contested application and did not oppose the contentions advanced by Mrs Bosanac. This was problematic for the Commissioner.
The Commissioner’s arguments
- As a joint borrower on the loan to purchase the property, Mr Bosanac incurred a substantial liability to the bank. This would have made little sense if Mr Bosanac did not intend to retain his beneficial interest.
- Other loan documents in respect of other dealings indicated that Mr and Mrs Bosanac shared bank accounts and other property assets. It follows the same approach to ownership that would extend to the family home.
- Mr and Mrs Bosanac took out two further loans, secured by the mortgage over the property, which were used by Mr Bosanac to conduct share trading.
The Court’s findings
- In the absence of other evidence, the fact that Mr Bosanac incurred a substantial liability under the loan documents did not conclusively show that he intended to retain a beneficial interest. In circumstances where a bank requires two signatures, it is up to the person seeking to rebut the presumption of advancement to show that the other person’s signature was merely a formality needed to obtain finance, as opposed to evidence of an intention to confer a beneficial interest on that person.
- Although Mr and Mrs Bosanac shared bank accounts, the loan documentation regarding ownership of other assets was inconsistent and could not be relied upon. When listing their assets, Mr and Mrs Bosanac failed to specify which assets were jointly and separately owned. There were also inconsistencies as to ownership of these assets in later loan applications.
- Although the loan used by Mr Bosanac to conduct share trading was secured by the property, Mrs Bosanac explained that she had no issue with this because she trusted her husband. Further, this loan was also secured by a separate property where Mrs Bosanac was the sole registered proprietor.
The Court observed that the registration of Mrs Bosanac as sole owner may have been made for many reasons but the evidence as to the intent of either party was very slim. In such circumstances the court cannot impute to the parties an intention based on what would be reasonable or fair with hindsight.
The Court held that the Commissioner had not provided sufficient evidence of an intention by Mr Bosanac to retain a beneficial interest in the property.
Where a couple are looking to protect their home from business risks, it is common for the property to be purchased and registered solely in the name of the non-risk spouse.
Although Bosanac involved a claim by a creditor, the issues discussed in the case would also be applicable in a bankruptcy scenario where the husband is bankrupt and the trustee in bankruptcy is claiming an entitlement to the property. In Bosanac, the acquisition of the property took place many years prior and there was, for example, no suggestion that the purpose of the transfer was to prevent, hinder or delay the property being available for division amongst the husband’s creditors.
To improve the wife’s prospects of relying on the presumption of advancement, it is prudent, at the time of the purchase, that the husband enter into a deed confirming he is making a gift to his wife, he has no beneficial interest in the property and, if he is a joint borrower on the purchase loan, that he has no rights of contribution against the wife in respect of the loan and mortgage.
If possible, it may also assist if their affairs are organised so that mortgage payments are paid from the wife’s income.
In any subsequent financial documents, such as statements of financial position on loan applications, the disclosures made should be consistent with the wife being the sole beneficial owner of the property. In other words, the husband should not suggest he has any interest in the property where the wife is the sole registered owner.
Where both parties may have commercial risks or there are circumstances where the presumption of advancement would not apply, early advice should be obtained regarding options for protecting the family home.
If you require any assistance, please do not hesitate to contact Graham Roberts or another member of our litigation and dispute resolution team.