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Legal Tip 94: Asset Protection - What are we protecting against?

Discussion in 'Legal Issues' started by Terry_w, 24th Oct, 2015.

  1. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    18th Jun, 2015
    When people talk about "asset protection" they are generally referring to protection against potential creditors. If someone sues them they don’t want ‘their’ assets falling into the hands of creditors. Ultimately this means protection on bankruptcy.

    But bankruptcy is not the only way assets can fall into the wrong hands.

    Other ways to lose assets:
    • Death
    Death is another situation where assets can fall into the wrong hands. Wills can be invalid, challenged, gifts fail, beneficiaries predecease you etc.
    • Incapacity is another risk.
    Rogue attorneys, wrong attorney, no attorney and court appoints, sale of gifts to prevent assets going to people via your will etc.
    • family law
    Spouse getting your assets, spouse's attorney grabbing control, lovers claiming defacto status etc
    • losing control of trusts
    Not many think about this. Pre death and post death. Discretionary Trust assets do not belong to any individual but are controlled by the trustee. It is possible for the trustee to be removed, either by workings of the deed or by the courts. Look at the recent Reinhardt trust case for example.
  2. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    18th Jun, 2015
    Many people fear asset protection when they own property. Other ways to enhance asset protection (in addition to legal advice + avenues!!) can include:

    - Structure / legal ownership. If you don't own a asset it can replace the ownership risk with a counter-party risk instead. ie : Spouse ownership or a "mate" can result in lack of control.
    - Insurance. PI insurance etc may expose the policy to the risk of indebtedness rather than the individuals assets. Most insurers will defend a claim at their cost however they may also hang the insured out to dry but if the policy is sufficient it may avoid the risk to assets. Important for high risk occupations eg lawyers, accountants, medical, pharmacists etc.
    - Complying with laws eg environmental, tax, super obligations, Fair Work Act, Australian Consumer Law, Crimes Act etc ...These matters can lead to personal liability and expose assets to loss.
    - Lack of life insurance for self / partner. Death could affect future ability to own / maintain or retain assets and lifestyle.
    - Risks to loss of personal income - Consider income protection ?
    - Avoiding third party liabilities. eg Director guarantees. They may pose no concern today but pose a major issue in ten years after asset accumulation has occurred and an adverse financial situation occurs and apparent efforts to limit asset losses seem problematic. (Bankruptcy claw back)