In family life, love and affection are priceless. But under Australian insolvency law, they are worth absolutely nothing.
Many business owners believe that putting assets like the family home into a partner’s name will protect them from business risks. Unfortunately, unless that transfer was made at full market value and properly documented, it can be undone if things go wrong financially.
This is not a scare tactic. It is a real legal risk under the Bankruptcy Act 1966, which allows property transfers to be reversed if they were made for less than market value before bankruptcy. That includes gifts or nominal transfers to family members, often done with the best of intentions.
What does the Law say?
Section 120 of the Bankruptcy Act gives a trustee the power to recover assets transferred for less than market value if the transferor becomes bankrupt within five years of that transfer. The courts do not accept personal motives like love, affection or shared family commitments as valid consideration. If no actual money changes hands, or not enough, the transaction is vulnerable.
Even if stamp duty was paid, an undervalued transfer can still be clawed back.
A Common Misconception that Exposes Families to Risk
In many family owned businesses, we see the opposite scenario of what people think is happening. The partner who runs the business also owns the family home. This means the very person exposed to business debt, personal guarantees, supplier credit and tax obligations is the same person whose name is on the family’s key asset.
This structure creates unnecessary vulnerability. If something goes wrong in the business, the family home may be fully exposed to claims by creditors.
At de Jonge Read®, we work with individuals and business owners to review:
- Who owns the home and how,
- What level of exposure that creates,
- Whether the current structure is protecting or endangering the family’s position,
- Where personal guarantees or securities already exist, and
- Whether a restructure is necessary to better safeguard the property.
Does this Mean the Business Director can Never Own the Property?
Not at all. Directors can hold an interest in the family home. The key is to ensure the structure is deliberate, properly documented and supported by the right asset protection strategies.
Where the business partner retains ownership, it is essential to understand what happens if financial distress arises. Personal creditors, liquidators or a bankruptcy trustee may have access to the director’s interest in the property. If the business fails, that ownership interest can be pursued.
This is why reviewing ownership, security arrangements and exposure before problems emerge is critical.
When Transfers Go Wrong
When business owners transfer their interest in the home to a partner without receiving full market value in return, the transaction can be clawed back by a bankruptcy trustee. This can occur even if the transfer happened years before and bankruptcy was not expected at the time.
The courts look at the facts, not the intentions. If the transfer did not reflect market value paid to the transferring partner, the protection often fails when it is needed most.
How to Protect Your Family the Right Way
At de Jonge Read®, we work with business owners every day to ensure the family home and other personal assets are properly structured and protected. We assist by:
- Reviewing how your assets are currently held.
- Identifying gaps or weaknesses that could expose the family if the business comes under financial pressure.
- Coordinating with your accountant or lawyer to implement structures that comply with bankruptcy, tax and property law.
- Advising on how to safeguard assets while still allowing the director to hold an interest if appropriate.
- Ensuring any transfers or structural adjustments are commercially sound and defensible.
Yes, There May be Costs, but Mistakes Cost Far More
Transfers between spouses at market value can trigger stamp duty in some states. While this is sometimes frustrating, the cost of proper protection is usually far less than the cost of losing the family home due to a clawback action.
Speak to Us before Making Any Changes
If you are thinking about transferring property, changing ownership or restructuring personal or business assets, speak to us first. It is far easier to protect your position early than to try and correct problems after distress arises.
At de Jonge Read®, we help individuals and business owners protect their family future with smart, compliant asset planning. Contact us for a confidential review.
Did you know?
Phoenixing is another name of business restructure. Read more about business restructures and when this can be an option for you.
