My husband and I are thinking of purchasing a property with 2 other couples(family members-brother and sister and asscosciated spouses).Ther are 6 of us in total, with 3 of us siblings,and 3 partners. We are wondering what type of structure would be best in the event that a divorce/breakup happens in any one of our relationships, and one of our partners would need to be paid out in the division of assets.The 3 of us(siblings) don;t want to sell just to have to pay out a partner for divorce. We need a structure that protects the property so it would not have to be sold in the event of the division of assets occuring after a divorce. Of course my brother and sister and I plan to own this property until we die and pass it onto our kids/grandkids – like a family estate. We are obviously hoping for the best in our relationships, but need to explore all options. The seller of the property(my and my siblings parents) currently won;t sell to us all(as a combined group) unless they can be assured that the property will not have to be sold and disposed of to pay any of our partners out in the event of a divorce(obviously for some reason they have concerns!). Is there any such structure that protects the asset, so that spouses can not claim on the asset in a divorce? Maybe some kind of company or sharelholder scenario? Maybe some kind of clause in a contract when we buy it that might give us a specified number of years to pay out the divorced spouse – that spouses may agree to now? We want to keep it as a FAMILY property. There is also a good possibility that the property will exponentially increase in value due to its size and location, and so to pay out any divorced spouse after a few years might mean paying a much higher – possibly double- the purchase amount , due to equity build up, and improved value. Perhaps at the time, for some reason, we may not be able to afford to pay the amount immediatly required as it may be very large(without trying to liquadate the house).
Also, to further complicate things, the property will include some improved capital value in building works that will be done by us in the coming years, but each couple will invest different amounts according to the size of structure that they require and build. (building houses and sheds on this property)
A little complicated but maybe an easy solution? If not, would a solicitor be the best person to contact to set up a meeting, or a financial planner specialising in property?
Thanks so muchThere are many things to consider here, no just the asset protection aspects. Firstly you will probably want a company as trustee for a trust. The trustee is the legal owner and its name goes on title. If one of the 6 wants out, title deeds can remain the same. If you had 6 names on title, then it would be a nightmare. secondly, you should use a trust because of the 50% CGT is not available to companies. Having a discretionary trustee is good because it is the most flexible structure, but the trustee of the discretionary trust has absolute discretion on how to distribute income, so it may not be good to have it this way with separate families involved. So you could look at each family using a unit trust. This way the trustee would pay equal shares to each unit holder (or % as agreed upon in setting up). Each family could hold the units of the unit trust in their own names or in a company or in a discretionary trust (DT). A DT would be more flexiable and save tax. There are other considerations too. Trusts are not completely safe from the Family Law Courts. You should consider borrowing issues. Having a company as trustee will make it difficult to borrow. Then the banks will want guarantees from every person involved or mentioned in the trust or company. Letting too many people guarantee will expose you unnecessarily. It will also hurt future borrowing ability. So it may be better to try to minimize this by only allowing 1 person from each family to go as a unit holder/shareholder etc. The other person will still be a beneficiary if a discretionary trust is used to hold the units. Then there is the question of who will be director. Directors take risks so it is best to have just 1 if you can. There is also land tax considerations. This will vary from state to state, but in NSW if you use a trust there is no land tax free threshold. This means you will pay land tax on the land no matter what value it is, whereas if held in personal names you would each get $357,000 in land land tax free – in addition to your main residence. Land tax is 1.7% in NSW so this is a significant factor to consider. There are also issues relating to flexibility in adding or removing people’s involvement. Stamp duty issues, CGT issues, borrowing issues etc all need to be considered. Another issue is set up and running costs. Each company, trust and individual will need tax returns done. Companies will also need annual ASIC fees of around $212. Set up for a company is about $500 and a trust about $1000. you will also need to pay stamp duty on the trust deed in many states – it is about $550 in NSW now. So this all adds up/ There is no one structure which will give you everything, so you have to compromise in some areas to gain in others.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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