It is well known that, when facing financial difficulties, some people offload their assets to loved ones in the hope of frustrating their creditors. However, as a High Court ruling showed, it is a great deal easier to allege such conduct than it is to prove it.
The case concerned a businessman who owed close to £2 million – almost all of it to HM Revenue and Customs – when he was made bankrupt in 2014. He had, in 2008, transferred his then jointly owned matrimonial home into his wife’s sole name. Not long before his bankruptcy, the property was sold and the proceeds used to purchase a new home which was, again, registered in his wife’s name.
His trustee in bankruptcy launched proceedings, alleging that, despite the 2008 transfer, he remained the property’s joint beneficial owner at the time of the sale. On that basis, the trustee asserted that his wife received his share of the sale proceeds on trust for him and that she was obliged to account for that sum to his creditors.
The trustee contended in the alternative that, even if the 2008 transfer was effective in shifting both legal and beneficial ownership of the property to his wife, it could be inferred that the transaction was entered into for the prohibited purpose of putting his share of the property beyond the reach of his creditors.
Disputing both those claims, the businessman argued that he had promised his wife on their marriage that the property would belong to her alone. The 2008 transfer was in fulfilment of that promise and had nothing to do with his financial position. He was not facing mounting financial pressure at the time and, in the context of his health problems, he was concerned to ensure his family’s financial security in the event of his death.
Rejecting the trustee’s claim, the Court had no doubt that the businessman’s aim in entering into the 2008 transfer was to gift his wife his 50 per cent beneficial share in the property. The transfer took place at a time when no specific creditor who was pressing for payment could be identified.
There was cause for supposing that he may have had concerns about his long-term financial position at the time of the 2008 transfer. However, he was able to meet his tax liabilities at the time and the evidence that the transfer was motivated by a prohibited purpose was circumstantial only.