Articles

Asset Protection

Protecting the value of your assets:

Asset Protection is about sensibly organising your affairs while things are going well. This should minimise the risk to diligently created or accumulated wealth, in the event that things go wrong. In this sense, assets include but are not limited to, investment assets portfolios, whether held in superannuation or other structures.

Asset protection then, is about –

reviewing the way you carry on your business, trade or profession;
how you own your private investment and/ or business assets; and
how to ensure that if the worst occurs, you do not lose everything you have worked so hard to accumulate.

How is asset protection achieved?

Asset protection is ultimately about defeating creditors in ways which are immune to legal attack. A mistimed restructure arrangement for such purpose will be rendered ineffective under various legal provisions if –

either the transferee knew the purpose of the transfer was to defeat creditors in particular circumstances; or
if it can be reasonably inferred that the transferee knew of that purpose.

Assets can be protected by a range of mechanisms, some of which can be affected post-acquisition of the asset. These include:-

original acquisition in a special purpose structure or entity. (Options in this area include –
- discretionary trust; s
- elf-managed superannuation fund – or SMSF; or,
- a company,
- along with some other options)
transfer from existing ownership structure to another structure or individual; and, in appropriate circumstances,
covered by insurance policies.

It is important to get the ownership of assets correctly structured at the earliest opportunity. It will generally be too late to make effective defensive transfers of property once issues of solvency emerge.

Because insolvency law is so technical, specialist advice should always be sought regarding any proposed asset protection structure.

Acquisition in a special purpose structure

Legal advice should be sought at the time of acquisition of any substantive asset (including establishing a business, or acquiring equity in a business). If done properly at acquisition, expenses such as transfer costs, stamp duty and capital gains tax will be avoided.

Transfer between structures protecting wealth

This is not just a strategy for business owners. If you are likely to leave a reasonable estate: be conscious of –

whether any of your prospective beneficiaries are likely to have financial difficulties, or
are dealing with financial matters generally,

and pay particular attention to this wealth management strategy.

Under intestacy law you may not be the sole judge of who receives your property on your death. A challenge to your Will may result in the court giving the person making the claim a larger part of your estate than you intended. Asset protection contributes to organising your affairs to prevent this from occurring. (See our Estate Planning is effective).

If contemplating asset protection through asset transfer between structures –

specific legal and accounting (tax) advice should be sought,
ensuring the transfer to be effective, but also at the least cost.

(Costs that are likely to be incurred include stamp duty, capital gains tax, valuation costs, legal and other advice costs – and probably a lot of your time.)