Why it’s hard for couples to hide their private homes from creditors

It might look good for couples to hold properties separately as a way to avoid some tax but do your sums carefully to make sure you can afford such an action.

The key risk arises if either spouse lands in debt and faces bankruptcy action, as creditors can sue for the whole property held by the debtor.

A couple learnt this painful lesson when they “decoupled” from the matrimonial home – transferring it solely to the wife’s name – so the husband could buy a more expensive home without having to pay the additional buyer’s stamp duty.

What they did not count on was the husband’s business failing. That triggered a chain of events that led to his new property being seized by creditors.

Here are three other cases of how creditors went after couples.

Worldwide injunction to freeze assets 

Like a plot straight from a TV drama, a creditor had to apply for a worldwide injunction to freeze a woman’s assets, which included four condominium units worth over $12 million in all, so the funds could be used to settle debts.

What made this case unusual was that she was not even the debtor – instead, the husband had transferred all the properties to her as part of their “divorce” settlement.

The move made the creditor smell a rat because no divorcing spouse had ever been so generous as to give up every asset that he or she owned.

The High Court granted the order to freeze the wife’s assets because there was a significant risk that the money would be dissipated, given that three of the condo units had already been sold, with the wife even stashing $3 million of the proceeds in cash at her home.

The court also noted that the divorce “had been the product of collusion” between the couple.

Property sold before divorce   

A woman filed for divorce barely a month before bankruptcy action was initiated against her husband. Shortly after, the couple agreed to part amicably, with the wife being given their luxury apartment.

When a bankruptcy order to seize the property was later issued against the husband, the wife claimed that she was the sole owner of the home.

It was then revealed that the couple had sold the property and the wife had already pocketed the sale proceeds of over $800,000 even before the divorce hearing, but they chose to hide this from the Family Court.

Not surprisingly, the High Court threw out her case because she had not acted in good faith when she obtained the divorce order.

The court even rebuked the wife, characterising her conduct as a “deception” to mislead the court into granting the divorce order, which was done with the purpose of moving the property out of the reach of creditors.

Couples cannot use divorce to hide assets

This couple filed a hasty divorce that took place between the filing of a bankruptcy action against the husband and before he was eventually made a bankrupt.

The ploy involved the husband agreeing to an interim consent order that required him to transfer his interest in two properties to his wife. The High Court found that the transfer constituted a “disposition of property” to avoid creditors.

On appeal, the wife argued that the bankruptcy law should not apply in her case because the properties were transferred following a court order on their divorce.

But the Court of Appeal did not buy the argument as it would mean that transfers made privately would be caught whereas settlements that were recorded as a consent order would be shielded from creditors.

So property transfers that are made under orders by the courts, such as those done during divorce cases, would not be protected from debt recovery actions, and liquidators and official assignees could examine whether such transactions are carried out in good faith.

Finally, it is prudent not to over-leverage on properties in the first place so that you will always have enough money to pay other expenses.

Tan Ooi Boon is the Invest Editor of The Straits Times

Source: The Straits Times © SPH Media Limited. Permission required for reproduction.

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