We are often referred clients whose husband or wife has passed away and the deceased estate is insolvent. If the husband and wife have jointly-owned a property (or properties) there are two ways the property can generally be dealt with. This depends on how the property is owned.
General rules about property ownership
There are two manners in which jointly owned properties can be held:
- As Joint Tenants, meaning each person has ownership of the complete property and if one owner dies, the property passes automatically to the remaining joint tenant(s); and
- As Tenants in Common, meaning all owners have equal rights to the whole property, but each owns a specific proportion of it. In these circumstances if one owner dies, the property does not automatically pass to the other owner(s).
Property Owned as Joint Tenants
If an insolvent person owns property with another party as joint tenants, then upon his or her death, the property passes automatically to the remaining joint tenant(s). However, this only occurs if the owner passes away prior to bankruptcy. If the owner is made bankrupt before passing away the joint tenancy is severed and his or her bankruptcy Trustee will have control of part of the property.
If an insolvent person passes away before his or her estate is made bankrupt then a “transfer” of ownership because of a joint tenancy is not able to be set aside in bankruptcy. This is pursuant to Section 249(6)(e) of the Bankruptcy Act 1966 (Cth). The only issue which may give rise to a recovery action is if the deceased has made improvements to the property in the two-year period prior to the commencement of any bankruptcy in which case the value of any improvements would have to be paid to a Trustee.
Property Owned as Tenants in Common
If the insolvent deceased owned property with another party as tenants in common, then the deceased’s interest in the property forms part of his or her deceased estate. Generally, the only way the property can be dealt with is if the deceased’s interest is sold. This can be done to a co-owner. However, if the estate is insolvent any sale must be for fair value otherwise it will give rise to a recovery claim in a bankruptcy of the deceased’s estate.
If the deceased’s estate is made bankrupt prior to any sale then a co-owner can purchase the property from the bankruptcy Trustee for fair value. Or the co-owner can join with the Trustee and sell the property with each party receiving a share of the sale proceeds.
Contact us for assistance
If you have financial problems or questions about jointly-owned estates and wish to obtain advice and assistance we are here to help.