Homes and startups: can I transfer my house to my partner in order to protect it?
Founders of startups take on considerable financial risk. So what should a founder do if the are building a house at the same time they launch their startup?
Is it possible to transfer it to a partner's name, just in case things go wrong?
According to the LawAdvisor legal research team, that’s a complex question. There are some problems that may arise if a founder transfers property to a wife or partner in order to avoid liability to creditors.
It is possible the law will not consider the property only belongs to you in the first place. This is because the law presumes that anyone who has worked towards and supported their spouse in property ownership (i.e helping to pay the mortgage, or being a stay at home parent, cooking, cleaning and supporting their spouse) may be entitled to a share of the property, even if the property is not in their name.
This is what is called a “constructive trust” and it means that transferring it to your wife may not protect your house from the creditors as you will still be deemed by the law to own part of it.
There are also financial implications in transferring property to another person. The first is that stamp duty on the transfer must be paid, which will be calculated on the value of the property. This can be quite costly.
There are also potentially capital gains tax consequences. Transferring the property may not end up helping. Even if the property is transferred to someone else, a lender may still require that the hose is security to any loan or that the legal owner of the house acts as a guarantor for the loan.
Asset structure and financial planning is a complex issue, so it is important to ensure that you seek legal advice. A lawyer can help figure out the best way to protect your assets in the event of startup failure.