Do you and your married spouse own and live in your home? Are either of you self-employed or involved in some occupation that involves personal exposure to financial risks(e.g. personal guarantees)? If you answer ‘yes’ to both these questions you should seriously consider registering your home under the Joint Family Homes Act 1964. It could prove to be very cheap protection against losing equity in your home in the event of being sued or bankrupted.
What is a Joint Family Home?
Most people think their home is registered as a joint family home because both their names are on the title. This is WRONG! It requires a special application to the Land Titles Office for your home to be registered as a Joint Family Home (“JFH”) under New Zealand’s Joint Family Home Act 1964.
The cost is between $500.00 – $1,000.00 plus GST. Costs vary depending on whether or not you wish to publicly advertise the application. The advantage of advertising is that the protection takes effect within six months rather than the standard two years after application. Also your bank may charge a small fee if you have a mortgage.
What is the Protection?
You will not be protected against secured creditors e.g your mortgagee, but part of your property will be protected against unsecured creditors; e.g. trade creditors to your business, if it is not a company.
Essentially the Joint Family Home Act 1964 creates a protected fund of $103,000 which is safe from unsecured creditors. This fund is to assist in the purchase of a replacement home unless unsecured creditors convince the High Court of New Zealand to exercise its discretion and agree to the sale of the home. (In practice creditors are reluctant to apply to the Courts because of high cost, and the reason that a judge has to balance the general desirability of preserving the matrimonial home for the family on the one hand against the just claims of creditors on the other.)
The Court cannot order the sale of a JFH home if there is less than $103,000 equity in the home. A mortgagee,however, can sell the home (in the event of default) no matter what equity the owners have. The protection is all the more worthwhile if the matrimonial home has previously only been registered in the name of one spouse.
Summary
For quick protection against creditors, some lawyers think a JFH application is more secure than selling the property to a family trust and dealing with the debt back. While this is debatable ,especially at higher levels of equity, it is certainly more affordable. Protection, however, can be lost if it is found at the time of application that the parties were unable to pay all their debts (other than those charged against the house) without recourse to the house sale proceeds.
One way to view the application is as a type of insurance. The insurance is cheap and involves a once only payment which is good for as long as you own the house. It is a simple procedure and the loss is small even if, at the end of the day, protection is not achieved.
Also for a small fee the registration can be transferred to your next home, and registration does not preclude transferring ownership to a family trust later on.
There are a couple of catches : a) you must be legally married to apply for a JFH, and b) if you die, the property automatically goes to the surviving spouse regardless what your Will says!
There are other criteria to satisfy also, so you should contact your Parry Field Lawyer to see if there are advantages for you in registering your home as a Joint Family Home.
This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Should you need any assistance with this, or with any other Relationship Property matters, please contact Lois Flanagan at Parry Field Lawyers (348-8480) loisflanagan@parryfield.com
