Bancruptcy

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From the Financial Standard today.

Small business mums and dads will be the worst affected by the new bankruptcy rule that allows bankruptcy trustees to take away the family home even if only one spouse goes bankrupt, regardless of who paid what for the property.

Geoff McDonald, barrister and partner of Hall Chadwick Chartered Accountants, highlighted that a High Court decision in March and amendments to the Bankruptcy Act which came into effect 31 May will allow the liquidator to recoup money through the family home, regardless of whose name the property is under if the asset was acquired during the marriage.

“This could be a category 10 storm in bankruptcy legislation, and it could cause monumental damage throughout the small business community,” he said. Statistics show that 9 out of 10 small businesses go bankrupt in the first three years of their operation.

“Like the bankruptcy law changes known as the ‘Skase Amendments’ and the ‘Bond Amendments’, these changes result from a knee jerk reaction by the government to ‘public opinion’. It really is disappointing to see this lack of foresight and policy contradiction,” he added.

On the upside, the new rules mean that bankrupt individuals can no longer exploit the legislative loophole whereby transferring their property ownership to their partner can protect that asset from future creditors. However, small business mum and dads who go under for genuine business reasons could find themselves out on the streets.

The recent High Court ruling effectively said that all husbands and wives own properties jointly and equally regardless of how much each contributed to paying them off. “Where a husband and wife purchase a matrimonial home, each contributing to the purchase price and where 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 by them,” the ruling stated.

McDonald suggested businesses can safeguard themselves against this ruling by owning the property under a family trust. But that route comes at a cost by way of extra taxes when buying and selling the property.

Michelle Baltazar

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Bryce Inglis
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Investment & Implimentation manager

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