Tuesday, August 10, 2010

House transfers and real love

Last week, I was reminded about the importance of proper planning when implementing asset protection strategies.

The particular scenario involved the potential clawback under the bankruptcy rules of a family home that had been gifted by a husband to a wife approximately 3½ years before a bankruptcy event. Many of you will be aware that changes to the bankruptcy rules extended the clawback period from 2 to 4 years a few years ago.

Whether the transfer could in fact be clawed back for this client was an issue which is as yet unresolved. The issue last week, however, was in relation to whether the value of the house as to today’s date could be clawed back or whether its value 3½ years ago was the relevant value.

The question was quite critical because notwithstanding the intervening GFC, the value of the house had gone up by more than 20% over the 3½ year period.

As the original transfer had been crafted simply as a gift for 'natural love and affection', we had to advise the client that the house itself was the asset that would be exposed and therefore the value at today’s date was at risk.

Next week, I will try to provide an example of how the original arrangement could have been structured differently to potentially limit the total value exposed under the clawback provisions.

Until next week.

Matthew Burgess