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Attempt to remove family home from reach of creditors partly successful

19 January 2015

Types of ownership

Couples commonly own their property jointly. One of the consequences of joint ownership is that the survivor is entitled to ownership if one of the owners dies. In contrast, where a property is owned as tenants in common, each owner has a distinct share. If one of the owners dies, that owner’s share passes in accordance with the deceased owner’s Will. If there is no Will, it passes in accordance with rules set out in the Administration Act 1969. A joint tenancy may be severed – or converted to a tenancy in common. This is normally done in one of three ways - by an act of one of the owners showing that intention, by agreement between the owners, or by a course of dealing showing that the owners regarded their ownership as a tenancy in common.

 

Relationship property agreement ineffective, but change of ownership makes a difference

Mrs Harvey was being pursued by creditors of her rest home business for $1.4m. In order to remove Mr and Mrs Harvey’s jointly owned family home from the reach of Mrs Harvey’s creditors, they signed an agreement under s 21 of the Property (Relationships) Act 1976 agreeing that Mr Harvey was to receive the family home.

Mr Harvey died. Mrs Harvey’s creditors claimed that Mrs Harvey was entitled to the whole of the family home because it had been jointly owned. This would mean the whole of the family home would be available to meet their claims. Mr Harvey’s estate claimed that the joint tenancy had been severed and therefore Mr Harvey’s estate was entitled to a one half share in the home. This would mean that only Mrs Harvey’s half share would be available to meet her creditors’ claims and Mr Harvey’s half share would pass to his estate.

The judge held that the disposition of the property to Mr Harvey under the relationship property agreement was void because it was made with the intention of defeating Mrs Harvey’s creditors. The question then arose - had the joint tenancy been severed, therefore entitling Mr Harvey’s estate to a one half share of the home, even though the legal transfer of the property to Mr Harvey had not been registered? The Judge found on the evidence that Mr and Mrs Harvey had a common intention to sever their joint tenancy. Alternatively, Mr and Mrs Harvey’s conduct showed that they treated their interests as separate and not joint. Mrs Harvey’s creditors could therefore lay claim to only half of the family home and Mr Harvey’s estate was able to retain the other half share.

 

Planning can make a difference

There are advantages and disadvantages to both types of ownership depending on the particular circumstances of the owners. The type of ownership chosen can be a valuable tool to protect assets or enable an easy transfer if one of the owners dies. If Mr and Mrs Harvey had done nothing, Mrs Harvey would have been entitled to all of the jointly owned family home when Mr Harvey died and her creditors would have been in a much happier position.

 

 

Please email me at barbara.mcdermott@nwm.co.nz with your ideas for future articles. Keep an eye out for next month's column, where I will discuss another relevant rural legal issue.


Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.