Bob the Builder Worries About Asset Protection and Seeks a Solution

Better protection, I agree. Protected I'm not so sure.
I aint a lawyer but that don't mean I can't know "stuff".

I'd say that depends on the structure, shareholders directors etc.

Nope, was busted by the family court at least once a few years ago. I read the case transcript.
The judge used stated that the entities were clearly "alter egos" of the husband and therefore included in the settlement.
Maybe there was an appeal or whatever but that case exists.

"good protection" doesn't mean protected, which implies cannot be seized.

 

And a company can only pay a dividend if it is solvent, s 254T Corporations Act.

We are not talking family law in this example - there would be no difference in fact on the family law front because the ultimate owner doesn't change - it is still Bob. Bob owns the shares in the original company and in the new company that owns the original company.

this is about creditors of the trading company - shareholders are largely irrelevant as it is the company that is sued.

 

The OP had
"What if your development business is sued ? That $1m bucks is up grabs mate"
The exwife can sue or go to court as anyone else.

And if he is sued and ordered to pay damages he either pays up or goes bankrupt and they take his shares. Any avoidance can be clawed back.

I would not consider that structure good asset protection.

 

In family law the spouse to the relationship sue each other.

If Bob is personally sued his personal assets are at risk and this would include the shares in the company.

It is not a good way to set up, but it is an excellent way to restruction things to give greatly improved asset protection if the trading company is sued and without triggering CGT - or stamp duty potentially.

A better way may be to use to small business concessions to sell the business to another related entity.

 

i'd prefer that the shares held by Bob were held by a discretionary trust at the beginning but if they are now transferred to a discretionary trust you will need to deal with the dividend stripping provisions which would be an even worse result.

I agreed it's not the greatest asset protection. It's a step to finding a solution. What would be your solution for Bob ?

Lot's of people say something isn't good and provide no alternative for discussion.

 

a few barristers who commented on that exact thread have all said they think dividend stripping will be a major issue and Bob would probably be unlikely to pass the test. That would be a worse result for Bob.