Before you transfer ownership of the family home to your spouse for the purpose of creditor-proofing, you should be aware of the following:
Timing is Everything
As a preliminary matter, the time to consider transferring ownership is well before any event that raises the prospect of personal liability has occurred. The courts can void a transfer to a spouse if it is done in order to avoid payment of impending liabilities. It is recommended that the transfer of a family home be done as part of a general plan to avoid the possibility of personal exposure that may arise in the future course of running your business.
Consequences of the Transfer – Separation or Death
You must be aware that there can be consequences to transferring your ownership to your spouse and these should be weighed carefully. If there is a marital breakdown and the spouses separate, the benefits of ownership only accrue to the title-holding spouse. There can also be consequences on the death of the title holding spouse, such as the need for probate and the payment of probate fees.
Protection of the family home from exposure to the potential liabilities of a business may be legitimate and intelligent planning. However, in deciding to do so, you should consider the effects of such a transfer in the event the of divorce or death. This decision should be made with the assistance of your lawyer and your accountant. That’s good business.