Transactions to Defeat Family Law Claims
Section 106B of the Family Law Act allows a court to set aside certain transactions designed to defeat an existing or proposed order relating to a party to a marriage or defacto relationship.
This can include transactions that are:
- Bankruptcy related
- Rights attaching to an interest in a company or trust
- changing Appointor positions in trusts
- Varying powers under a trust
Bart is about to divorce his wife and resigns as appointor of the family trust and appoints his friend Millhouse. Bart also causes the trust to be varied so that neither Bart nor his wife are beneficiaries of the trust. The trustee is also controlled by Millhouse.
Bart then gifts money to the trustee of the trust. Bart borrows this money back and lets the trustee take a mortgage over his house as security for the loan. Bart sells another property he owns for $1 to the trustee of the trust.
This series of transactions involving Bart could be attacked in several ways. Including:
- Court reversing the amendments to the trust
- The gift could be clawed back
- The loan set aside
- The mortgage set aside
- The transfer of the property could be set aside.
- The court may not do any of the above, but to simply take the value of the assets into account when working out the division of property between the spouses.
Keep in mind that just because a transaction can potentially be attached does not mean that you should not do this.
Legal advice should be sought if seeking asset protection.
Written by Terry Waugh, lawyer at Structuring Lawyers, www.structuringlawyers.com.au