9 Things You Need to Know To Protect Your Assets against Lawsuits (Even If You Don’t Think It Can Happen To You)

Posted on April 08 2016 | Back to blog

“Asset protection is perhaps the most misunderstood and neglected form of personal financial planning.” – The Australian

Imagine this.

You’re distracted for split second and cause a car accident.

Or:

Your finance department messes up your BAS by mistake. The ATO debt collectors knock on your door.

Are your assets protected?

You need to fortify your assets during the good times to protect against unexpected attacks in the unforeseen bad times. When the enemy launches an attack, your assets will be safeguarded and your livelihood and lifestyle protected.

Without asset protection, everything you’ve worked for over a lifetime can be lost in a heartbeat once a creditor or Government agency initiates action.

Here are nine reasons you need to plan your asset protection strategy now, so an unthinkable financial disaster doesn’t destroy your financial livelihood.

1. You can be a lawsuit target – even if you don’t own a business

NSW is the third most litigious state in the world. The only prerequisite for being a litigation target is owning assets of value to someone else.

Assets of value to others could include your family home, investments, personal bank account monies or your business.

And if you think you’re protected because you’re an employee – you’re wrong. One wrong move by your employer could mean they go under. You could be next in the firing line, with no employer to protect you.

2. Plan while business is good before it’s too late

Don’t wait. Just like owning insurance, establishing an asset protection plan before something happens is essential. Predicting the future is impossible. It’s too late once things go wrong.

3. Asset protection is not only for the rich

Anyone is at risk, regardless of the value of their assets. But the fewer assets you have, the greater the impact is when you’re faced with lawsuits or bankruptcy. You’ve got less to fall back on.

4. Insurance isn’t enough

Insurance doesn’t cover everything. If it did, there wouldn’t be such an enormous range of insurance policies on the market. Insurance policies are governed by legalese and fine print so detailed and technical that it’s easy to believe you’re covered. Yet, you may not be.

Business insurances cover business activities. But your business could be at risk from individual and personal incidents outside your control, such as being found at-fault in a car accident.

5. It’s easier to start before you’re rolling in assets

It’s like building a house. Plan correctly to begin with and the rest is plain sailing. But changing things during the build can cost more.

With asset protection, it’s possible to implement a strategy at any point in time. However, the greater your assets, the more liability you may face for capital gains taxes and stamp duty.

Start early, keep it simple, and don’t try to hide stuff from your creditors.”- Jay Adkisson, Forbes

6. It’s too late to transfer assets to family members after the event

It doesn’t take Sherlock Holmes to trace records and follow paper trails these days. Your after-the-event transfers will be detected quickly by the authorities and seized.

7. Proprietary Limited Companies are not secure

Why? Because they’re owned by shareholders. If you’re sued, everything in your name is at risk, including your company shares.

8. Asset protection isn’t costly

It’s a small price to pay compared to the hefty and crippling legal costs you will face if hit by a lawsuit, creditor claim or Government agency action.

9. Some aspects of asset protection are best handled by experts

Several things you should consider letting the experts handle when creating an asset protection plan are:

  • Loans owing by your entities. It’s a common mistake to assume that your assets are protected by using companies and trusts. But don’t forget about loans owing between your entities, or to you personally.
  • Companies. In some cases, company directors have been held personally responsible for company debt. Such as when debt is incurred during insolvency or by fraud.
  • Partnerships. Partners are jointly and severally liable for the debts of the partnership, which means they are both liable for any debts incurred by the partnership. If one partner has insufficient assets, the other may be liable for the full amount.
  • Superannuation. Usually protected from creditors, the exception to this rule is in cases where sudden, significant increases to contribution patterns take place, which flags the move is to protect assets from creditors.
  • Trusts. When a trust experiences trouble, and there are unpaid distributions owing to a beneficiary, these amounts are not secured to the beneficiary and may be lost if there are insufficient funds to meet creditors’ claims.

Protecting your assets against unforeseen attack is possible when you have a solid asset protection strategy in place.

With a bit of planning, you can safeguard your assets.

So when the unthinkable happens and the ATO knocks on your door threatening bankruptcy for unpaid debts, or a personal liability claim threatens to drain your life savings, you’ll be protected.

You’ll soon breathe easy knowing everything you’ve worked for in your life is safe for you and your family for years to come.

Taxeffective White

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