CUMMIN'S CASE - IS THE FAMILY HOME STILL SAFE?
01 09 2006
Most of you would be aware of the decision of The High Court in Cummins wherein the Court said “where a husband and wife purchase a matrimonial home, each contributing to the purchase price and title is taken in the name of one of them, it may be inferred that it was intended that each of the spouses should have a one half interest in the property regardless of the amounts contributed”.
The Court held that the transfer by Mr Cummins in 1987 of his interest in the property to his wife was void under Section 121 of the Bankruptcy Act (in respect of his 2000 bankruptcy) and, in addition, his wife would only be entitled to 50% of the proceeds despite her providing substantially greater contributions to the property. The judges of the High Court (in a unanimous decision) decided that Mr Cummins’ true motive in transferring the asset was the avoidance of a then existing obligation to the Australian Taxation Office (despite no returns being lodged and therefore no assessments having been issued).
As a result of this case, unless supported by clear evidence to the contrary at the time of the original purchase (or transfer), the Courts may find a property to be held jointly and each spouse entitled to a one-half share of the equity even though one party may have contributed a greater amount to the purchase.
Financial advisers should, at the very least, ensure there is sufficient evidence at the time of the purchase (or transfer) that the property was intended to be purchased solely for the benefit of the “non at risk” person.
To clarify the law under the Bankruptcy Act:
- if you are recommending to your clients the transfer of the family home, then, if the purpose of the transfer is to defeat creditors (whether existing or contingent) there is an unlimited time period available to a bankruptcy trustee for recovery under Section 121 of the Act.
- if you are recommending to your clients the transfer of the family home, then, if the purpose of the transfer is NOT to defeat creditors (whether existing or contingent) there is still an “at risk” period under Section 120 of the Act being:
- up to four (4) years if full consideration was not paid and the transferee was solvent at the time of the transfer to a related party (only up to two (2) years if not related and solvent at the time); or
- up to five (5) years if full consideration was not paid and the transferee was insolvent at the time of the transfer.