Very few of us truly stop to think about how to protect ourselves financially. It might be a completely foreign topic for some but there are mentors and professionals who can help guide you through this process.
We spend a large part of our time and effort in creating assets and growing our personal wealth. But are we equally diligent in protecting them? Asset protection should be an essential feature of your financial planning as it protects our precious assets like the family home, rental properties, and investment portfolio from personal and financial setbacks.
Asset protection is also important to protect you against bankruptcy, or even a divorce which can lead to the loss of your personal assets.
Protecting Your Personal Assets from Litigation or Bankruptcy
Litigation with your creditors, or a bankruptcy, can cost you your personal property if you are unable to settle your debt. To prevent this from happening, many business owners establish a trust to manage the business and the laws regarding this vary between states.
In the event of litigation, the assets listed under the trust are alone used to settle the case, keeping the personal property of the business owner safe. However, in the case of a loan default, even the personal assets of the Director of the trust can be used to reclaim the loan. Board Directors of NFP, public and private companies need to also heed this advice as you are responsible for various fiduciary duties to the organisation and if breached, may lead to personal liability of the Director.
A good way to avoid this is to keep your important personal assets like your family home in the name of an unexposed spouse so that the property is safe from the outcome of litigation. You can also consider gradually moving your profits and investment portfolio to a self-managed super fund (SMSF) as assets managed under an SMSF are legally protected from creditors.
Both the above ways provide a legal structure to separate you from your assets while still giving you a degree of control over them. This will in turn help to protect your family from any business or Directorship issues that arise.
Protecting Your Assets from Divorce
Family courts will order an equitable division of marital assets in the event of a divorce. In order to safeguard your property for you and your children, you can consider establishing a trust where you can bequeath important assets to your children. Since such trust assets are a financial resource for the children, they are not under any threat during a divorce.
You can even arrange for regular income to be paid to your children from the trust. A prenuptial agreement can also be very useful in preserving your assets for your children, especially if you retain custody of your children.
Preserving Your Assets for Your Children After Your Death
You need to preserve your assets for your children so that they can benefit from them after your death or in the event that you are unable to make decisions for yourself. The most common way is through estate planning in which you make a will that clearly lists and divides your assets amongst your spouse and children.
It is normal to make the spouse the sole beneficiary and the children inherit it after his or her death. Leaving a will behind prevents differences regarding who gets what and ensures an equitable division of your wealth.
Recent legal reforms have led to Family and Bankruptcy laws being much stricter than they were before. For example, the Bankruptcy Act has a four-year claw back period during which asset protection steps may get nullified, allowing them to be used for legal settlement.
It is clearly imperative to protect your assets financially. Setting up trusts, have a will and possibly a prenuptial agreement can all help you to protect you and your family from unfortunate situations. There are a number of mentors and professional contacts at BCD who can advise you on how to best protect your assets for the future.
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