How To Protect Your Home

People still like to own certain assets such as the family home in their own name. During the time that they own it, most home owners experience huge gains in the values of their properties and for many this will be tax-free as there is no capital gains tax (CGT) on profits made when you sell your own residence (current as at 2005/06 financial year), provided it is not over 5 acres or 2 ½ hectares in size, and has not been used partially or wholly as a place of business (e.g. working from home as a place of business not just a home office). But the CGT exemption is only available if the property is held in the personal name or names of the occupiers, which creates a dilemma for people who are trying to protect their primary asset, their home, from possible litigation.

The most basic way to achieve this is to place the family home in the name of the spouse who is not involved in the business (they must be totally separate from your business and investments so that your creditors have no right to pursue them) or in any type of risky profession (there is no point if they also work in an area where potential litigation is also a risk). This way it will be protected from the hands of your creditors.

Of course this arrangement will only work if you actually have a spouse or partner and if there is no litigation directly against your spouse or partner for any reason. It is therefore not the best solution for optimum asset protection and other avenues need to be explored.

With the divorce statistics in this country peaking at over 50%, many of you who do have a spouse may ask what happens in the case of a marriage split if all the core assets are in your spouses name because he or she is in the profession or business with the lowest risk? Well the family law court sees through all structures and ownerships, and the assets will be divided in the same proportions as if all marital assets were jointly owned. It is only pre marital assets which may be treated differently.

It is also worth noting that assets transferred as a result of a court-awarded property settlement in a divorce situation, do not incur any stamp duty or capital gains tax liability at the time of transfer. Capital gains tax may be payable however if, or when, the asset is ultimately sold by the receiving party. That is, if an investment property was transferred as a result of a divorce, the receiving party would have to pay capital gains tax when they eventually sold the property and they would be taxed as if they had owned the property themselves all along. If the property was their principle place of residence and it remained their principle place or residence, then of course, no capital gains tax would be payable.