The Sunday Times - A Question of Money - 24 July

Posted by Jill Kerby on July 24 2011 @ 09:00

Who is liable when joint asset is at risk?


CD writes from Dublin: My sister and her husband jointly own an apartment in the south of France that was bought with her family inheritance. However at the moment her husband has a number of other large property loans worth about €1.5 million to pay back that he bought with two other men and he is negotiating with the bank to alter and reduce the repayments. He is self employed and the repayments are unsustainable for him and he has knowingly begun to skip payments. There is a possibility that the husband and wife's foreign property may be at risk of going to the bank in the future as they do not know how things are going to work out.

Should my sister put the property in her own name to protect it from the bank seizing it if things were to reach that point?   

John Hogan of Leman Solicitors in Dublin has suggested that any attempt by the husband to shift his portion of the French property to his wife in order to prevent it from being part of his assets that are taken into account for the settling of debts is unlikely to be successful. Such an action contravenes, he suggested, Section 74 of the 2009 Land & Conveyancing Reform Act which sets out to prevent any action that could be considered a way to defraud a “sub-purchaser or creditor” from the kind of transfer you describe.  


That said, your sister’s portion of the French property could not be claimed by the bank though she might have to buy out her husband’s share of the value that he owes the bank if she wants to keep the property.


There have been some very high profile cases of developers transferring property to their wives in the last few years. Your sister may wish to consult a solicitor to establish exactly what her property rights are in this case.


Right or wrong?


TB writes from Cavan: I was wondering what your thoughts were on the forthcoming rights issue from Bank of Ireland. Do you think taking up the rights is throwing good money after bad or do you think that in the long term Bank of Ireland will survive? I know you will probably recommend talking to a advisor but any help would be gratefully appreciated.


I wouldn’t recommend that you seek the advice of a stockbroker about this rights issue – they will be keen for you to buy the shares so they can collect their commission.  They are hardly impartial.


As I have written before, unlike so many stockbrokers who make endless, usually incorrect predictions about stock movements, I don’t have a crystal ball on my desk, so I have no idea if Bank of Ireland will survive as one of the ‘pillar’ banks the government is so keen to see established.  However, I think it’s a good guess that if it does survive, it could be some time before the bank rewards its shareholders with attractive, sustainable profits. That will only happen when the Irish economy recovers and that will only happen when the Irish state is taken off EU/ECB/IMF fiscal life support. Even without a crystal ball that doesn’t look very imminent either.


Since you have spare money to invest, you might want to first secure its integrity by not leaving it all in euro, let alone using it to buy more Bank of Ireland shares.  You might want to consider converting some of it into gold and silver which is finally being acknowledged as a store of value in these uncertain times. A proper, fee-based advisor can also help identify other defensive options like index-linked bonds, and strong, income yielding shares and funds that are undervalued right now. 


Many genuine speculators (as opposed to gamblers) have bought bank shares that have been propped up by governments or central banks on the grounds that it makes sense to follow the money, but even they usually do so on the condition that the government or central bank involved isn’t about to go bust. That’s the additional risk you take putting your money in this latest rights issue.


Pension fears

AOC writes from Dublin: I have approx €700,000 in my company defined contribution scheme. I am aged 55 and can retire at any time. Three questions: 1) In the event of Ireland defaulting, leaving the euro, returning to the punt and the resulting inevitable devaluation, will pension funds retain their euro value or be devalued pro rata to the national currency. Will my €700,000 become €350,000 if the new punt is devalued by 50%?

2) In the event of the above, would funds held in Ireland, in foreign owned/guaranteed accounts also be devalued and 3) If I convert my DC fund to an ARF, at what stage must I draw down the annual 5%?


Let me answer question 3 first. The 5% annual, taxed, ‘imputed distribution’ from an approved retirement fund (ARF), only begins at age 60. Nor does it attract the 0.6% pension levy, which is why taking early retirement, 25% of your fund tax-free and ARFing the balance might be an attractive option for you.


As for questions 1 and 2, no one knows for sure what exactly would happen if Ireland were to leave the euro, including whether euro held in non-Irish banks would be devalued. To be on the safe side, you might want to assume that it would be and act accordingly.  


Meanwhile, assets in pension funds that are not held in euro – say, American shares, British property, Canadian government bonds, even Perth Mint gold certificates which qualify for Irish pension and ARF investments, would presumably remain outside the euro until retirement when they would be liquidated in order to purchase an annuity in the new currency or be transferred into a new Irish currency denominated ARF. 


If your entire pension fund was invested only in Irish shares, bonds, property or (Irish) euro, and we went off the euro, then the devaluation of your pension assets would immediately coincide with the devalued new currency.

For this reason, you may wish to have your pension fund assets reviewed sooner rather than later.




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