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Smart Consumer: How to be broke -- and still live a millionaire lifestyle


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Bankrupt developers and bankers continue to live in style despite racking up billions in debts they will never be able to repay.

Some do so, apparently, thanks to assets held separately in the names of their wives.

Developer Paddy Kelly recently drove around in a 7-series BMW while telling a journalist all about his €700m reversal in fortunes.

A few weeks later, the car was seized by ACC Bank -- but not for long.

The car, it emerged, was owned by his wife Maureen and the bailiffs had to hand it back and apologise.

Last week we learned former Anglo boss Sean FitzPatrick's wife Catriona had joint-account bank balances totalling at least €1.1m (not including accounts solely in her name).

The situation is reflected in numerous bankruptcies triggered by the recession.

So how does bankruptcy law work with regard to assets held in the name of a spouse?

"If a bankruptee's wife is worth €5m, she can do whatever she wants with it," says solicitor Donagh McGowan, partner with Mason Hayes & Curran.

Assets can also be transferred between spouses, a practice commonly used by professionals such as solicitors or accountants, who are not protected by limited liability.

It is legitimate as long as the couple are solvent at the time of the transfer -- and a declaration to that effect must be signed at the time.

However, transfers that took place within five years of a bankruptcy could be called into question by creditors. And transfers within two years can usually be treated as void.

"A review would determine whether or not it should be set aside. If it was made for a good reason when the person wasn't bankrupt, then it would be generally considered genuine," he explains.

Asset transfer within a marriage has no financial downsides and can be done tax-free (as long as you remain on good terms with your spouse!)

Mr McGowan says: "It's tax- free, there is no stamp duty, capital gains tax, or capital acquisitions tax implications and it's very easy to do."

"If you have cash in the bank, it can be transferred to a sole name; if the asset is a property, it can be transferred to the wife's or husband's name," he says.

It's impossible to say how much asset transference went on at the height of the boom. "That will come out in the wash," he says.

But Mr McGowan suspects that maybe it was not as much as one might think.

"What surprises me is that many individuals do not appear to have legitimately safeguarded a portion of their assets during the boom years," he says.

Instead, some of them did the opposite and dragged their spouse's assets into the mire of debt by getting their signature on joint guarantees.

Nor did they take as much advantage as they could have of other tax-saving methods of asset protection, such as setting up trusts for their children.

"From what I've been reading, it seems a lot of individuals appear to have put nearly everything on the line," Mr McGowan notes.

So what happens if the marriage of an (entirely hypothetical) bankruptee breaks up? Then the bankruptee would make a claim against the assets of his or her spouse. But creditors would then move in for their "pound of flesh" and seize his assets.

So, bankrupt spouses not only depend on their partner's goodwill to continue living in style, they could be left with nothing in the event of a divorce.

The best advice for them is "be nice to your wife. Be very nice to your wife!" Mr McGowan quips.

Irish Independent