In a recent decision, Silvia (Trustee) v Williams [2018] FCAFC 194, guidance was given by the Full Federal Court in relation to a claim by a trustee of a bankrupt spouse that the bankrupt had a beneficial interest under an equitable trust in the family home.

In relation to claims like this, the long standing legal position is that a Court will only intervene and declare a proprietary interest in a family home when it would be unconscionable on the part of the person against whom the claim that is brought, to refuse to recognise the existence of an equitable interest in that property.

Background

A married couple Mr and Mrs Williams resided in a jointly owned matrimonial home on Blake Street, Dover Heights, New South Wales.

In May 2012, Mr Williams purchased a $2.09 million property closer to neighbouring Bondi Beach on Military Road, Dover Heights, which was intended to be their new matrimonial home. Full legal title was in his name only. Prior to shifting abodes, Mrs Williams renovated the Blake Street property. Unfortunately, the purchasers of that property were dissatisfied with Mrs Williams' efforts and she was successfully sued in the New South Wales Supreme Court and judgment of more than $AU1 million in damages was given against Mrs Williams. In 2014 Mrs Williams presented a debtor's petition and became bankrupt.

Mrs Williams' bankruptcy trustee sued Mr Williams in the Federal Court of Australia alleging that: 

a. the Military Road property was acquired whilst Mr and Mrs Williams were married;

b. the Military Road property was intended to be their matrimonial home; and

c. Mrs Williams had contributed to the acquisition.

The ultimate relief pressed was that a shared common intention trust arose.

At first instance, Silvia v Williams (Bankrupt) [2018] FCA 189, the Court found no beneficial interest arose in favour of Mrs Williams. On appeal, the Full Federal Court found that the necessary elements of a common intention trust were not made out. Also, even though the bankrupt was found to have made an indirect contribution of at least $AU209,000 to the deposit of the Military Road property, there was no sophisticated tracing conducted of the funds from the jointly-owned Blake Street property into the now singularly owned property. Even if this payment would have prima facie satisfied the element of detriment necessary for a common intention trust, the Court was unable to establish the nature and purpose of these payments given the intermingling of the couples' financial affairs.

Key takeaways

To successfully make out a claim that property is held on trust by a non-bankrupt spouse for the benefit of the bankrupt's estate:

  1. the nature of the trust in the claim must be identified with precision;
  2. the flow of funds from the bankrupt's assets to support the claim must be traced; and
  3. the motivation as to why legal title is in the name of the non-bankrupt party needs to be given consideration. 

A useful mechanism to establish the evidence in support of such a claim will be the trustee's powers to seek the examination of persons who may give evidence about the bankrupt's affairs.

http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FCAFC//2018/194.html

Solicitor Andrew Giorgi contributed to this article.

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