Spouse lending money to a spouse
Spouse Loan Agreement
Doctors, Accountants and business owners are at high-risk of bankruptcy. They are at risk of being sued and losing everything. In contrast, the stay at home parent, teacher or government employee is at low risk. It makes sense to have the family assets in your low-risk spouse’s name. A Legal Consolidated Loan Spouse Agreement works towards that goal. It is another important strategy to protect your family’s wealth.
Putting all the family assets into the low-risk spouse is common. This is called the ‘Man of straw and women of substance‘ asset protection strategy. All assets go into your wife’s name. This better protects the family if the husband goes bankrupt.
But what happens if the wife then gifts money to the husband?
Do not gift money to the at-risk partner. That is silly. Instead, the wife lends the husband the money. This is via a legally enforceable Legal Consolidated Loan Agreement between spouses.
What if your husband goes bankrupt? You seek to get back the loan using the Loan Agreement. You at least get some of the money. Also, you can influence, as a creditor, whether your husband goes bankrupt or enters into a compromise.
In the movies, IOUs are often handwritten on a piece of paper. Sometimes instead of a Legal Consolidated Spouse Loan Agreement, someone does a ‘minute’. Both approaches fail. In Rowntree v FCT  FCA 182 shows the additional care required to document even simple related-party transactions, such as loans. In this case, the taxpayer, a practising NSW lawyer, claimed he borrowed over $4m from his group of private companies. The Court said:
‘Mr Rowntree has not deliberately chosen to ignore the law. His evidence presented to the Tribunal suggests that he genuinely believed that there were arguments to support his view that a loan was in existence.
He failed. Only a legally prepared Spouse Loan Agreement satisfies the ATO, Bankruptcy Courts and Family Court.
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1. Spouse Loan Agreement – ready to sign
2. Legal Consolidated’s letter of advice.
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You are building your Loan Agreement between spouses on a law firm’s website. Telephone us for legal advice. We can help you answer the questions.
For other asset protection strategies see here.
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Spouse Loan Agreement Document
Our law firm’s letter of advice on our law firm’s letterhead and signed by one of our Partners.
If you do know but are paying it in instalments, then put it all in as one figure.
Otherwise, just put in the total figure. Remember to put in the dollar sign.
If you want it all paid back on the one date, just enter that date in.
1) “Payable in instalments of 10% per calendar month”
2) “Half to be paid on 21 September 2018, and the remainder to be paid on 21 September 2019”
1) If you are charging your spouse no interest, put the word “Nil”
2) If you are not sure what the interest rate is yet, leave it as the default, which is “as demanded from the lender from time to time”
3) You can put in a flat rate, for example, “5%” (do not forget to put the % sign in)
4) Keep it variable, for example, “2% above the Commonwealth Bank interest rate”.
5) You can also use the inflation rate. Use the expression “calculated according to the percentage increase in the Consumer Price Index (all groups) for the average of the capital cities of the Commonwealth of Australia (as published from time to time by the Australian Bureau of Statistics or body that takes over that function)”.