If you are declared Bankrupt, can the Trustee in Bankruptcy go after your home if your home is purely in the name of your spouse/de facto?

Published 12 Dec 2018
Dominic Maley

For those persons who are unable to pay their debts when they fall due, and are declared bankrupt, the Trustee in Bankruptcy will take over that person's financial affairs for the 'bankruptcy period'. During that period, the Trustee in Bankruptcy can sell your assets – including your home – to meet your debts as best as possible. You are ordinarily entitled to retain ordinary household goods, certain tool used to earn an income and vehicle(s) with a value up to a set amount.

But what about where your home is held in the name of your spouse alone?

The recent decision of Silvia (Trustee) v Williams [2018] FCAFC 194 provides a useful insight into one of the possible arguments a Trustee may try to run: namely that your spouse holds half of the property on constructive trustee for your benefit.

In this case, the Trustee's argument failed (both at first instance and in this appeal decision).

Silvia (Trustee) v Williams: a background.

Interestingly, both Mr and Mrs Williams are not strangers to litigation. They were key protagonists in the current leading decision of when the Australian Consumer Law applies to sales of land. For further background see our earlier article:

http://www.maclarens.com.au/Newsletter-1392-Are-you-selling-land-as-a-vendor-in-Trade--26-Commerce-3a-Does-Australian-Consumer-Law-apply-to-you.aspx

Indeed, being sued in that earlier litigation is what led to Mrs Williams' bankruptcy.

Mr and Mrs Williams had originally been sued for more than $1million after the sold a house full of defects at Blake Street, Dover Heights, (the "Blake St Property") to the Pisanos. The trial judge there held both were liable under the Australian Consumer Law, with Mrs Williams further liable under the Home Building Act 1999, as an owner builder.

Whilst Mr and Mrs Williams were both able to 'win' their argument on appeal that the Australian Consumer Law did not apply to them as they are not selling property in the course of trade and commerce, Mrs Williams was still liable for the defects under the Home Building Act.

Silvia (Trustee) v Williams: purchase of the Military Road Property

Mr and Mrs Williams had made $1.56 million out of the sale of the Blake Street Property in January 2012. 5 months later, Mr Williams entered into the purchase contract for a home on Military Road, Dover Heights (the "Military Road Property"). This property was to be the matrimonial home for both Mr and Mrs Williams. But was only purchased in Mr Williams' name.

Mr Williams paid the $209,000 deposit for the Military Road Property from his account, and notably the next day Mrs Williams paid him $209,000 from her account to top up his account. The Trustee in Bankruptcy further alleges that Mrs Williams contributed an additional $122,000.00 to Mr Williams which freed Mr Williams' financial situation to allow Mr Williams to complete the purchase of the Military Road Property.

Mrs Williams was not then made bankrupt until 7 October 2014.

Mrs Williams' Trustee in Bankruptcy desperate wanted to get their hands on 50% of this home.

Many arguments were advanced in the initial proceedings the Trustee brought in the Federal Court. The Trustee lost on all grounds, and on appeal agitated on main ground: that Mr Williams held 50% of the home on constructive trust for Mrs Williams.

If this was established, then the Trustee could have had access to that 50% share.

Silvia (Trustee) v Williams: a constructive trust?

On the facts above, should a court conclude the 50% of the property is held by Mr Williams for the benefit of Mrs Williams by way of constructive trust?

In the context of spouses and de factos, a contrustive trust can be imposed by the court where the property is put into one person's name, but it would be "unconscionable" in the circumstances for that person to deny the other person's equitable interest.

The classic examples are where the spouse or de facto contributes financially to the acquisition of the property in the other person's name, or improves or maintains the property, and there is a detriment to the first person.

The Federal Court held that the Trustee in Bankruptcy did not establish that Mrs Williams' money could be traced to the Military Road purchase.

The Full Federal Court agreed, and rejected the Trustee's appeal.

While the $209,000 payment from Mrs Williams to Mr Williams was "on its face … an indirect contribution referable to a deposit" it was also significant that both Mr and Mrs Williams had various accounts of money in their individual names which they frequently transferred funds between.

The Trustee had the burden of proof to establish that the $209,000 payment by Mrs Williams had a sufficient connection to the Military Road Property and had failed to prove that the purpose was indeed for the purchase, or contribution of the purchase, of that Property.

The further $122,000 paid by Mrs Williams to Mrs Williams was even less persuasive to the court that is should be assigned a sufficient connection to the Military Road purchase.

The Full Federal Court went a step further than the Federal Court and held that the Trustee had raised the constructive trust argument so late in the initial proceedings that Mr Williams was prejudiced by such lateness and the argument should not have even been entertained in those first proceedings. Accordingly, the Full Federal Court would have dismissed the Trustee's claim on that basis alone.

The expert legal advice, contact Maclarens Lawyers on 96823777.