How to protect your family home against creditors

The presumption of advancement is a principle that plays a role when a property is jointly owned, or the other party accrues some right on the property. This principle mainly applies in the case of married couples.

The presumption of advancement also known as the presumption of a resulting trust is a principle that is based on the occurrence of either of the two factors:

• Where a property is purchased in the name of a sole person or joint names, but the other person does not contribute to the purchase consideration.

• Where the purchase consideration is contributed by the two parties, but the property is registered in the name of one person.

A component of trust arises in such a scenario, in the case of a marriage, the law relies on the presumption of advancement as per which it is assumed that the husband gifted the property to the wife. There is however an exception to the application of this presumption as it does not apply to de facto partners, same-sex spouses, or where the gift is from the wife to the husband.

This principle has been elaborately dealt with in Commissioner of Taxation v Bosanac (No 7).

In this case, the husband and wife jointly obtained a bank loan for the purchase of a property. When the property was purchased, it was in the sole name of Mrs. Bosanac. After the fact, additional loans were granted, secured by the mortgage, allegedly for the purpose of stock trading by Mr. Bosanac.

They lived together in the home, shared some property assets and bank accounts. The Mrs. Bosanac did not provide any suggestion that she was the sole owner with an intention to protect the husband from creditors.

The Commissioner argued that Mr. Bosanac had a 50% beneficial interest as he was the joint borrower under the home loan. Given the level of Mr. Bosanac’s liability to the bank, it was not realistic to suggest he did not anticipate holding his beneficial interest. Additionally, Mr. and Mrs. Bosanac shared property and bank accounts, further validating the Commissioner’s claim.

The Court held that though it is referred to as presumption the legal approach is not confined strictly to a presumption and that the presumption applies to a matrimonial home (as was argued by Mrs. Bosanac). The Commissioner had to provide evidence that the husband's actual intention was to retain a beneficial interest in the property. The Court noted, Mrs. Bosanac could be registered as the sole owner for a multitude of reasons and stated that the intention of the Bosanac’s was not clear.

The loan documents did not show that the husband intended to retain a beneficial interest. In some instances, both the signatures on the bank documents are taken as a mere formality to obtain finance and do not act as evidence of an intention to confer a beneficial interest on that person.

Though the couple shared bank accounts, they failed to specify which assets were jointly and separately owned. There were also inconsistencies as to ownership of these assets in later loan applications.

The Court maintained that the registration of the property was made by Mrs. Bosanac as sole owner and the Commissioner failed to provide sufficient evidence of the intention of Mr. Bosanac to retain a beneficial interest in the property.

It is a common tradition to register the property in the name of a low-risk partner to protect the property from various risks.

However, if one party signs on the loan document along with the spouse as a mere formality, it is prudent for the other partner to complete other financial documents in parity with such financial division. There should be no suggestion that the other party has a beneficial interest in the property acquired.