Asset Shifting Between Spouses

Many business owners consider transferring their home or other assets to a spouse (or a family trust) before starting a business or entering into a risky venture. The aim is simple — to protect the family home if things go wrong. But is this strategy effective?

The Federal Court case Wallace v Wallace [2016] shows that the answer is not always straightforward. While transferring assets can sometimes work, its success depends heavily on timing, intention, and how the transfer is managed.

Different Views on Asset Transfers

There are two ways of looking at this issue:

• The avoidance view assumes people transfer assets to escape debts, leaving creditors and the ATO out of pocket. This perception is common but doesn’t reflect how the law is applied.
  

• The risk management view is that people should be able to decide how much they put at risk. If assets are moved well before business risks arise, and businesses are structured properly, then protecting family wealth is a legitimate step.
  

Australia’s laws are designed to balance these perspectives. Transfers aimed at dodging existing or imminent debts can be overturned. But when made well in advance, assets should remain secure.

The Wallace Case

In this case, an accountant became a director of a motor retail business in 2004. At the same time, he transferred his interest in the family home to his wife and accepted personal liabilities, including guarantees to St George Bank.

Ten years later, when the business collapsed, his bankruptcy trustee tried to claw back the property. The Court agreed, ruling the transfer void under section 121 of the Bankruptcy Act.

What’s significant is that the Court treated motor retailing as a “hazardous venture,” and held that even a decade-long gap between the transfer and insolvency didn’t matter. The ruling suggests that stepping into a risky business can make asset transfers vulnerable for many years afterwards. Who would have though that the business of motor retailing was hazardous?

Key Lessons

The case highlights some important takeaways for business owners:

• Transfers made once personal liabilities exist are highly vulnerable.

• Signing guarantees or loans around the time of a transfer strengthens the link between the two.

• Continuing to tell banks or suppliers you own an asset after you’ve transferred it can damage your position.

• Courts may now see many industries as “hazardous,” making last-minute transfers unreliable.
  

Practical Steps to Protect Your Home

Transferring assets may play a role in protecting your home, but it’s not a complete solution. Better protection comes from planning early and managing risks carefully. Steps to consider include:

• Use the right structure — companies can provide limited liability if managed properly.

• Minimise exposure — avoid appointing both spouses as directors unless essential.

• Be cautious with guarantees — banks may insist, but not all suppliers will.

• Plan ahead — make transfers well before liabilities arise. Waiting until risks are on the horizon is too late.

• Avoid direct contributions — if your spouse or trust owns the home, repayments should come from them, not you.

• Keep clear records — trusts and related-party arrangements need proper documentation.

• Transfer at market value — this may limit the value creditors can reclaim. An asset financed by an equal amount of debt is not such a bad thing in terms of asset protection.

• Be honest with creditors — never suggest you own assets you no longer hold.

• Have a valid reason — estate planning can support a transfer in addition to asset protection.
  

Final Thoughts

Transferring your home into your spouse’s or a trust’s name can be part of an effective strategy, but it’s far from bulletproof. The Wallace case shows how timing, documentation, and even the type of business you enter can affect the outcome.

If you’re about to take on business risks, the best approach is to plan early and seek professional advice. At Symmetry Accounting and Tax, we can help you design the right structure, understand your obligations, and protect your personal assets while you grow your business.