This article considers the pitfalls of voluntary transfers in Ireland, the ability of creditors to set aside voluntary transfers under various sections of legislation in Ireland and the importance of establishing solvency at the time of the voluntary transfer to ensure it withstands close scrutiny.
Voluntary Transfer Explained
Voluntary transfers are usually between related parties where one owner transfers a property to another owner as a gift during their lifetime. No remuneration changes hands.
For those who are insolvent executing such deeds is not an option, however for those who remain solvent, voluntary transfers may be an effective method of protecting their assets, depending on a range of circumstances.
Before any mechanism is employed to protect assets, consideration should be given to any possible current or future claims by creditors. In particular this should be examined when executing a voluntary deed.
When Can A Voluntary Transfer Be Set Aside?
In Ireland, voluntary transfers may be valid but they may be liable to be set aside. Pursuant to the Bankruptcy Act 1988 should the donor be declared bankrupt within 2 years of the voluntary transfer, even if the donor was in fact solvent at the time of the transfer, the transfer can be declared void.
The voluntary transfer can also be set aside if bankruptcy occurs within 5 years of the transfer, but after the 2 year period has passed, although there would be a defence for the donor should s/he be able to demonstrate that s/he was solvent at the time of the transfer being executed. Under the Personal Insolvency Act 2012 certain provisions regarding fraudulent transfers or settlements of assets by the applicant for bankruptcy have been extended to 3 years.
Land & Conveyancing Law Reform Act 2009
Under Section 74 of the Land and Conveyancing Law Reform Act 2009, any voluntary disposition of land made with the intention of defrauding a creditor of the land is voidable by that creditor. However, a voluntary disposition is not to be read as intended to defraud merely because a subsequent disposition of the same land was made for valuable consideration. There is no time limit on this provision, although the intent to defraud would have to be proven, which in itself could present difficulties.
National Asset Management Agency (NAMA) Act 2009
Similarly, under Section 211 of the NAMA Act 2009, NAMA has power to apply to Court to set aside transactions executed by a debtor with the effect of prejudicing NAMA. The Court will be empowered to declare a disposition to be void if, in its opinion, it would be just and equitable to do so.
How A Declaration Of Solvency Can Help Prevent Voidance
A solicitor drafting a voluntary deed may require that the donor sign a statutory declaration known as a “declaration of solvency”. This confirms that the transfer was effected for natural love and affection without any intent to defraud the donor’s creditors and that the donor was solvent and able to meet his or her other creditors without the benefit of the property transferred.
To provide additional substance to the voluntary transfer and to support the declaration of solvency, it would be prudent that the donor arrange for a professional to prepare a statement of net worth of his/her assets demonstrating his/her solvent status.
Voluntary Transfers To Spouses & Civil Partners
On the transfer of assets from a donor to his/her spouse or civil partner, currently any capital gains tax, capital acquisitions tax or stamp duty that would normally arise are exempt. Accordingly, for taxation purposes, the transfer of assets to the spouse is a very tax efficient method of asset protection.
However, such a transfer may not provide the necessary protection required should the spouse/civil partner be exposed to liabilities in his/her own capacity. There may also be various considerations to be made such as the likelihood of future divorce or separation.
Always Seek Legal & Tax Advice
Any asset protection mechanism, other than a transfer of assets to a spouse or civil partner, is likely to give rise to certain tax implications. Comprehensive legal and tax advice should be sought for all asset protection measures.