The absence of an intention to put assets out of the reach of creditors will thwart applications under the Insolvency Act to set declarations of trust or transfers aside.

In Fagan v Papanicola, a husband had made a declaration of trust over his beneficial interest in the matrimonial home to his wife absolutely. This was done at a time when the husband had no financial difficulties and his debts could have been repaid. The reason for the declaration had been his wife's concern that the husband would gamble his assets away and she wished to ensure hers and her family's future financial security.

Some years later the husband was made bankrupt and his trustee sought to set aside the declaration as a transaction at an undervalue or an attempt to put property outside the reach of creditors (s339 and s423 Insolvency Act 1986 respectively).

Both applications failed. Although the declaration of trust referred to the grant of a gift to the wife, that was not conclusive evidence that the transaction was a gift. The court looked at the circumstances surrounding the transaction.

Here, the wife had agreed not to divorce the husband and seek ancillary relief and that was sufficient consideration for the transfer of the husband's beneficial ownership in the property. The husband's dominant purpose behind the transfer had not been to avoid his debts, but to secure his marriage and family's financial security.

Things to consider

Although the consequence of a transfer or declaration might undoubtedly be that assets are placed beyond the reach of creditors, that will not, of itself, be sufficient to have the transaction set aside. The individual circumstances surrounding the transfer will need to be fully considered.