Legal Tip 85: The 4 Risks to Consider before Entering any Transaction

The 4 Risks to Consider before Entering any Transaction

There are 4 main risk events that each person should consider before entering into any contract or investment

1. Death
2. Divorce of De-Facto Separation
3. Incapacity
4. Insolvency

Consider each of these from both or all sides of the transactions.


Example.

Say you were going to purchase a property with your brother. You should consider what would happen if any of the 4 events happened to you, your brother or the vendor before settlement.


If you

Die - what would happen to your interest in the property? Do you want it to go to your brother, your spouse or someone else? How you own the property will affect what happens. Joint Tenants v Tenants in common etc.


Divorce - your spouse may not be on title but she or he could slap a caveat on the property and drag things on with a property settlement. If this were to happen mid construction if could be a disaster for both you and your brother


Incapacity - What if you lost your marbles? Your brother couldn’t go on without access to money, to bank account and signatures would be needed. Consider an appropriately drafted enduring power of attorney.


Bankruptcy - your brother could end up owning the property with creditors. It could be better to have a different ownership structure if you think there is a chance of bankruptcy.


Then consider from your brother’s perspective.

If he were to die how would be affect you? Then consider the rest - divorce, death and insolvency.


Finally consider the risks if any of these were to happen to the vendor - unlikely in a short settlement period but it does happen. Are there any special conditions about death for example? Should there be?


Keywords: Asset Protection

 

Thanks Terry. I am renting a car for a week or two shortly and will definitely consider the risks above when signing the contract.

 

Sorry I should have said ever significant contract or transaction.