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Joint Family Homes
Some comfort and protection is given to small business owners by the Joint Family Homes Act 1964.
The Act became law during the social reforms of the 1960s and set up a statutory joint tenancy for married couples. One of its more unique features was that the family home (i.e. of a married couple) was given protection against creditors. A joint family home is protected against unsecured creditors up to, currently, a "specified" sum of $82,000. It is relatively easy and inexpensive to put in place.
Our Changing World
In the present "user-pays" climate and given the nature of accepted personal relationships outside marriage, it is clear the Act has lost some social and commercial relevance it once had.
The Law Commission has conducted a review of the Act and points out that it is now of limited practical advantage in terms of creditor protection. It concludes that $82,000.00 (protected from creditors) does not take account of regional variations in house prices; and there has been a decrease in the number of registrations, said to reflect a recent decrease in demand. (However, this decrease may be due to the changing patterns of personal relationships - generally you cannot have a JFH if you are not married).
The Pros and Cons
We believe there is merit in preserving the mechanism in the Act so that, for example, the sole trader can take advantage of a relatively simple mechanism rather than using another means of creditor protection such as harbouring assets in a Trust.
Sole traders are advised to take professional advice on whether it would be worthwhile applying now to have their home become a JFH as opposed to having the expenses of setting up a Trust. If there is to be a change to the law (as the Law Commission recommends) there may be an immediate stop to protection for current JFH owners. Those who already have JFH’s should stay alert - if there is a need to look at other mechanisms then timing could be everything.
It might be a pity to let the reassurance offered to business owners under the JFH Act slide into oblivion by repealing it. The creditor protection could be retained in modified form, to take into account the current social and commercial environment.