Advisors working with family businesses often encounter well-intentioned clients who transfer personal assets to their spouses believing they are “protecting the home.” However, unless these transfers are made for full market value and properly documented, they may be overturned under bankruptcy law, with devastating consequences.
Under the Bankruptcy Act 1966, love and affection are not recognised as valid consideration. If a transfer is made for less than market value and the individual becomes bankrupt within five years, a trustee can claw back the property to repay creditors.
Understanding Section 120
Section 120 of the Act allows a bankruptcy trustee to recover property that was transferred:
- By a person who later becomes bankrupt,
- For less than market value, and
- Within five years of the bankruptcy event.
This provision is frequently overlooked by clients attempting to restructure informally or move assets away from the business-operating partner.
Even partial payments that fall short of market value can leave the transaction vulnerable. Personal motivations such as family protection, safeguarding the home, or future planning do not hold legal weight unless backed by appropriate financial consideration and legal documentation.
Your Role in Protecting Clients
As a professional adviser, you play a vital role in preventing these avoidable pitfalls. At de Jonge Read®, we work alongside accountants, lawyers and financial planners to:
- Review client asset structures in the context of commercial risk
- Identify whether past transfers may be exposed under bankruptcy provisions
- Develop and implement legal asset protection strategies that can withstand scrutiny
- Provide pre-insolvency planning and commercial workout options to reduce the risk of formal bankruptcy
By collaborating early, we can help ensure your clients’ intentions are protected by legally sound structures.
Don’t Let Clients Rely on Assumptions
It is common for clients to believe that informal arrangements, such as “I transferred it to my partner because I trust them”, are sufficient. These assumptions often result in unintentional exposure and costly litigation.
Encourage clients to seek advice before transferring any property. Help them understand that costs such as stamp duty or valuations are usually far less than the risk of losing the family home due to an avoidable clawback.
Let’s Work Together to Deliver Stronger Client Outcomes
At de Jonge Read®, we understand both the technical and personal dimensions of these situations. Our role is to complement your advice with practical strategies that protect your clients’ interests, whether during growth, financial stress, or potential restructuring.
Let’s work together to ensure your clients are properly protected. Contact de Jonge Read® for case-specific guidance or to refer clients for pre-insolvency planning.
Should you have clients or associates that you know are struggling with financial issues or need assistance in reviewing their business affairs in preparation for what’s around the corner, our team of Strategists would be pleased to discuss options that are available on how to best design and implement insolvency strategies. Contact us now on p. 1300 765 080 | ua.mo1770885643c.arj1770885643d@ofn1770885643i1770885643
Did you know?
Phoenixing is another name of business restructure. Read more about business restructures and when this can be an option for you.
