Protecting one’s assets should be a key priority of any wealth accumulation strategy. No one wants to make losses when a small effort is all that’s required to hold on to them.
What are we protecting assets from? There are a few risks arising from different scenarios. Any business risks creating liabilities if the business goes under, or through major unexpected costs such as a lawsuit. On a more personal level, after you die your estate may be subject to claims by someone who thought they should have been named as a beneficiary. Although it’s hard to be completely immune, proper structuring of your affairs can shield you from such risks, so long as they are set up in advance.
Generally, such arrangements involve transferring the assets to other entities. Superannuation is a common and obvious place to put your assets, and may also allow certain tax advantages. Certain forms of trusts can also be used. Since there are a number of costs associated with transferring assets, an arrangement called a gift and loan can be used to minimise costs, keep the asset available if desired, but still protect it. This usually requires the assistance of a professional. There are many provisions in estate or bankruptcy law which may void these arrangements so be sure to have them professionally structured.
The most common situation in which people find themselves trying to protect assets is during a relationship breakdown. Although the traditional ‘pre-nup’, or financial agreements as they are know in Australia, are commonly recommended, they come with important limitations which may reduce the effectiveness of the usual asset protection strategies. In Australia courts have commonly been willing to set aside such agreements under a certain circumstances. These can include if it was signed under duress or if one party was significantly disadvantaged. A recent court ruling has shown that even the most judicious steps taken in advance, including arranging for the other party to receive independent legal advice, can sometimes be insufficient to ensure an agreement remains in effect.
For this reason it is advisable to seek advice on these issues as far in advance as possible and to seek expert advice. Arrangements set up in haste are almost always less effective, so you’ll want to be considering right now how you can protect your assets before it becomes necessary. A small effort now can save you a lot of pain down the road.
The information contained in this blog is General in nature and does not take into account your personal circumstances. You are advised to seek independent advice from a Financial Adviser before acting on any information contained herein.