The unexpected can happen to any business, and the creditors come calling for their money. How do business owners and directors protect their assets from this eventuality?

Protect-Your-Personal-Assets

Anything can go wrong in the business, your business insolvencies and mortgage delinquencies can rise. Demand can change drastically leaving the business with large debts, or a business relationship can turn sour leaving you exposed to litigation.

Australia is one of the most litigious nations in the developed world. Thus, it is important that you take necessary steps to ensure business shortcomings do not wipe your personal assets as well. Here are a few tips:

1. The Family Home

One of the very basic assets at risk is the family home, if held in the name of an individual. Even with co-operate protection, the trustee or the director of a firm may be called to take care of a deficit in paying debts by selling their home.

One way to protect the family property is to give a majority of its ownership to someone that has no risk of bankruptcy or litigation. This could be your spouse, or children. Retain some interest in the home so that you have a say on what happens to the home.

Another way to mitigate the risk to the home is to undertake borrowings in return to the equity of you home. This gives an external party some little equity in the home. This can be increased in the future so that creditors have little to gain from the house.

2. Trusts and Other Assets

You could also have the property held under a trust. However, this has tax implications. Individual homeowners are eligible to land tax exemptions and capital gain tax, but trusts are not exempted.

You could also use a service entity that protects the property and enables tax advantages. This entity owns the business assets and equipment. No litigants can attach the property in a legal action.

3. Superannuation

Superannuation has statutory protection from possible creditors. It is also tax effective, enabling you to grow your assets. By gradually moving the private business into a self-managed super fund, you gain control and greater flexibility over your assets than a corporate entity. SMSFs attract a high capital gains tax liability. In this case, you may be able to create a Private Ancillary Fund to offset the liability.

When considering an asset protection plan, you must pay attention to minimizing tax, planning your estate and other integrational wealth issues. There is no one approach that fits all. Seek professional advice in getting the right solution for you and your personal situation.

What to do now?

Contact us if you would like to have more information on managing your assets. Our lawyers at You Legal will be happy to assist you in whatever way we can.

* This blog is for general guidance only. Legal advice should be sought before taking action in relation to any specific issues.