Safeguarding Your Assets

02 Jul Safeguarding Your Assets

In these uncertain times many businessmen are transferring assets, frequently including the family home, to their wives. The hope is that in so doing these assets will be put out of reach of their creditors, usually the Banks. But how effective are such transfers? The law has moved with the times and new laws have come into effect in the last two or three years, in additional to the long standing bankruptcy laws. It was also the case that a transfer of assets could be set aside where the Transferor (i.e. the person transferring the property out of his ownership) was bankrupted within two years or, in some circumstances, within 5 years where the transferor could not show he was solvent at the time of the transfer.

Section 74 of the Conveyancing and Law of Property Act 2009 provides that any transfer made with the intention of defrauding a creditor is voidable. This will be a question of fact in each case. The Court will not look only at the transfer but also at the likely consequences of it. Thus, in one case a widower stood to inherit his wife’s estate but disclaimed his inheritance. The Courts held that on the facts of the case the effect of the widower’s actions was to put assets beyond his creditor’s reach. The disclaimer was set aside on that basis.

NAMA legislation provides that a transfer may be set aside where an asset was disposed of with the effect of delaying, defeating or hindering NAMA. The wording of this act is very broad ad is also not restricted to time limits such as 2 years or 5 years.

However, whilst transfers from one spouse to another may be set aside where it is clear that the transfer was done by the two of them planning together to default creditors, the Courts may take a different attitude in a case of family law situations. The view of the Court is that public policy considerations are involved and that the Courts should not allow the rights of creditors to supercede the rights of spouses so as to leave them without any means. In the first NAMA family law case to come before the Courts, the Court held that the provision of security for maintenance for the dependent spouse would not be a voidable transfer for the purposes of the NAMA Act.

Transfers of family homes by one spouse to another are generally considered to be safe providing one can show that the transfer was made “in consideration of natural love and affection”, i.e. with a genuine wish to benefit one’s spouse as opposed to a wish to defraud creditors.