Monday, August 23, 2010

The price of love

Two weeks ago, we touched on a situation where the gifting of a family home was potentially exposed under the bankruptcy clawback rules.

As I mentioned, if the original transaction had been structured slightly differently, around 20% of the value of the property could have been protected.

In simple terms, instead of a straight gift of the property, the following steps could have been taken:

1. The house could have been sold by the husband to his spouse for its market value 3½ years ago.

2. The transaction should have been structured under a vendor finance arrangement.

3. Following completion of the sale transaction, the husband could have forgiven the outstanding debt for 'natural love and affection'.

4. Assuming that all steps would have been properly legally documented, then the wife would have had at least a reasonably arguable case that the capital growth in the asset since the date of the initial transfer would have been quarantined to her benefit and not available to creditors on the bankruptcy of her husband.

Until next week.

Matthew Burgess