Wednesday 24 May 2017

The family home is never really beyond reach of creditors

Emmet Oliver

WHILE it normally only makes up a small part of their overall wealth, Ireland's wealthiest men usually do everything in their power to keep the family home out of the clutches of creditors.

As a result, a number of wealthy people and developers have transferred the full ownership of the family home to their wives. But this does not necessarily protect the home from creditors (or banks).

Transfers of assets, or shares of assets, over a five-year period before the borrower got into trouble can often be reversed via the courts if a bank or NAMA decides it wants to take such a step.

NAMA's powers to do this arise in a number of ways. First of all, under the Bankruptcy Act 1988 any transfer made by a bankrupt in the previous five years can be unwound and the assets can suddenly come back into play.

The other powers available to NAMA actually arise under section 211 of the NAMA Act 2009.

Under these powers transfers can later be reversed if they were intended to deprive NAMA of the full value of an asset or the security underlying that asset.

There are also more general provisions under the Companies Acts which allow creditors to reverse prior transfers of assets.

Of course many wealthy people are also under the assumption that the Family Home Protection Act 1976 means their home can never be taken off them. This act was designed to stop one spouse selling the entire dwelling under the nose of the other spouse.

While it does give a spouse power to withhold their consent if the other spouse tries to sell the property against their will, it does not stop creditors taking a charge on the property and even applying to court to force a sale.

Of course, the creditors can only pursue the 50pc of the property owned by a borrower, but they can force the whole property to be sold so they get their money.

In that case the bank would get the proceeds of their 50pc, while the wife gets the proceeds of her 50pc share.

However, so far action of this kind is rare.

''It's just not happening in the current environment -- banks are not prepared to force sales,'' said one legal source.

The other reason many don't want to force sales is because of property prices. There is little point in taking the 50pc proceeds of a house that could be worth a lot more 10 or 15 years from now.

''In many cases the banks are simply registering a charge over the property and sitting back and waiting until the price recovers,'' the source added.

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