Having
deliberately registered a commercial property in their joint names to avoid
tax, Wellington property developer Mark Horsfall could not later argue that it
was not relationship property to be shared with his then wife Diana Potter.
Mr Horsfall paid $560,000 in May 2003 to
buy out the half share his property company 168 Group Ltd did not already own
in a commercial building in College Street, Wellington. This money came from the sale of shares owned
by Mr Horsfall as separate property together with funds from another company:
Riddiford Holdings. Ms Potter did not
contribute any cash. Ownership was then registered
in their joint names. The College Street
building was sold one year later for $1.57 million. The Court of Appeal was told personal ownership
was taken to avoid an income tax liability which would arise on resale if
ownership remained with Mr Horsfall’s property companies. There was correspondence with lawyers acting
on the transaction stating College Street was intended to be the new matrimonial
home, though as a commercial property it was patently unsuited as a home.
When College Street was later sold, Mr
Horsfall gave $50,000 cash to his spouse from the proceeds transferring the balance
to 168 Group Ltd. When their relationship
came to an end, Ms Potter argued she was entitled to a half share in the sale
proceeds. Mr Horsfall said while they
were registered as owners, they held title as trustees for 168 Group Ltd.
The Court of Appeal said removal of any
potential tax liability from his property companies required Mr Horsfall and Ms
Potter to become the beneficial owners of College Street. Having chosen this course, Mr Horsfall could
not later argue that it was a tax dodge and that his spouse instead held title
as trustee only and had no beneficial interest in the property. The courts will not allow someone to avoid
the consequences of actions deliberately taken.
Having been registered as the beneficial owner of a half share, Ms
Potter was entitled to a half share of the sale proceeds regardless of how the initial
purchase was funded.
Potter
v. Horsfall – Court of Appeal (25.10.16)
16.151