Bankruptcy

·

30 Jun 2015

20 years is a long time to hide an asset from a trustee

READ TIME

3 min

But when caught, it didn't matter, as long as the ex-wife doesn't get it!

Once upon a time Mr and Mrs Smith were happily married. Before their special day, while living together, Mrs Smith purchased a house solely in her name. Once married, Mrs Smith borrowed against the house to fund renovations to the property.

Mr Smith was declared bankrupt some six years after marrying Mrs Smith. Mr Smith did not disclose to his bankruptcy trustee an interest in the house registered to his wife, where they both lived, and of course since the property was only registered to Mrs Smith, it did not show up in the trustee’s title searches of Mr Smith.

Shortly after being discharged from his three-year bankruptcy, Mr Smith separated from his wife and later divorced. Under the Family Law property settlement proceedings Mr Smith claimed an interest in the property in which he and Mrs Smith had lived together. Mr Smith swore affidavits setting out financial contributions to the property made by him—contributions he hadn’t disclosed to his trustee.

Despite Mr Smith being discharged from bankruptcy—when disclosed to the trustee, any property belonging to a bankrupt, or acquired during the bankruptcy, vests in (belongs to) the trustee for six years after discharge. But, if not disclosed, then property vests in the trustee for 20 years. Yes, we have to hold on to our files for a really long time!

As the share of the house Mr Smith was seeking from Mrs Smith was an asset, the trustee became involved in the settlement proceedings. The trustee relied on Mr Smith’s affidavits, noted to the court that the property was not disclosed in the bankruptcy and therefore vested in the bankruptcy trustee for 20 years, and sought a 50/50 division of the property, with, of course, Mr Smith’s share being paid to the bankrupt estate. Mr Smith, realising the game was up (he even conceded to the court that he waited until his discharge from bankruptcy before making the claim), supported the trustee’s position. Mrs Smith accepted that there should be a property split, but thought that 70/30 in her favour was more appropriate.

The court found that, despite the property being registered in Mrs Smith’s name solely, it may be inferred that Mrs Smith held the property for herself and on trust for Mr Smith. This was supported by evidence that Mr Smith had contributed to the mortgage payments and to renovation costs, and that the renovation application to the council was made in joint names. Both Mr and Mrs Smith had dealt with the house as though it was a shared matrimonial asset. The court divided the property 67% to Mrs Smith and 33% to Mr Smith based upon contributions each had made to the purchase price, stamp duty and renovation costs.

And they lived happily ever after...Well, perhaps not Mr Smith, because he didn’t get anything as it all went to his trustee.

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