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Declaration of trust protects wife’s house from husband’s creditors

A court has ruled that a woman should be allowed to keep her family home even though her husband’s creditors wanted it to be sold to help clear his debts.

It is an unusual case and illustrates the benefits that can arise from making a declaration of trust.

The husband had bought the house several years before in his own name. However, he had an alcohol problem and also liked gambling. Eventually, his wife became concerned about the family’s financial security. To protect her future, she insisted that her husband made a declaration of trust in her favour which effectively handed the house over to her.

At the time this was done the husband had no significant debts and was able to meet all his mortgage payments. That changed a few years later, however, when he fell into serious debt and was declared bankrupt.

The trustees in the bankruptcy applied for an order setting aside the declaration of trust the husband had made regarding the house and his wife. They argued that it had simply been a way of putting the property beyond the reach of his creditors.

The husband denied this and said the declaration had been made at his wife’s insistence. She had threatened to divorce him if he didn’t sign over his interest in the family home to her. The only reason she had in taking such assertive action was to maintain her family’s financial security.

The court ruled in the family’s favour. The judge said he was satisfied that the main reason for the husband’s action was to maintain his marriage. The effect was to place the house beyond the reach of the creditors, but while that might now be a beneficial consequence of the declaration of trust, it was not the reason for making it in the first place.

The ruling does not mean, of course, that a person facing financial difficulties can avoid creditors by simply placing assets in someone else’s name. However, it does show that a declaration of trust made in good faith can help to protect a family’s financial security.

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