Asset Protection

146/117 Old Pittwater Rd, Brookvale, NSW, 2100

Smallwoods Lawyers | Brookvale | Northern Beaches

Smallwoods Lawyers, Brookvale Northern Beaches explain why Asset Protection is essential and how failure to do so can have enormous financial and personal consequences.

ASSET PROTECTION
The need for protecting one’s assets has become more important as a result of our increasing litigious society. In the article below I provide five simple mechanisms to show how one can take steps to protect the assets which have been billed over a number of years by hard work.  

The need to protect one’s assets can arise from:
1. a third-party claim against a manufacturer of goods or the provider of services;
2. a claim by a financial institution arising out of the inability of a borrower or obligator to meet obligations and responsibilities under loan and security contracts;
3. a claim against a service provider (eg. a builder arising out of a building contract);
4. a claim by a partner living in an alleged de-facto relationship against a deceased estate.

The above are just a few examples where one’s assets may be put at risk. Not all mechanisms would be able to defeat a claim but depending upon individual circumstances, Smallwood Lawyers, Brookvale Northern Beaches can provide advice to determine which mechanisms are most appropriate for you and which are more likely to provide the protection sought.

Asset protection mechanisms can be broken into broad categories:
1. Insurance protection
2. Hold assets in legal entities which are not open to attack (eg. trust structures)
3. Superannuation.
4. Personal assets within a family held by the person not liable to attack.
5. Proper succession planning through appropriate estate planning and Will drafting.

Smallwoods Lawyers in Brookvale on the Northern Beaches have advised on Asset Protection matters for over 40 years.

ASSET PROTECTION - INSURANCE
It is important that anybody involved in manufacturing or selling goods or supplying services adequately protect themselves with appropriate professional indemnity or product liability insurance. It is also important to ensure that the insurance policy suits your needs. For example:

What is the excess you may be required to pay on any claim?

What is the maximum amount payable under the insurance policy?

Does the policy adequately cover the possible risks? (Check carefully the exclusion clauses. For example, some policies may exclude liability as a consequence of an employee’s fraud.)

Does the policy continue to cover after one ceases to operate the business. (Note a claim may be made up to 6 years after the event giving rise to a claim.  

Smallwoods Lawyers in Brookvale on the Northern Beaches have advised on Asset Protection matters for over 40 years.

ASSET PROTECTION
Hold assets in legal entities which are not open to attack (eg. trust structures)

It is important for the valuable assets of any business to be held in a structure which is not carrying on the business. For example, intellectual property could be held in a company or trust structure and licensed to the operating entity.

Similarly the intellectual property, plant and equipment can be owned by a separate entity to the entity actually manufacturing the goods. It is important that any contract for the supply of goods is between the company manufacturing the goods and not the company or entity holding the assets used to produce those goods.

Smallwoods Lawyers in Brookvale on the Northern Beaches have advised on Asset Protection matters for over 40 years.

ASSET PROTECTION - SUPERANNUATION
Generally superannuation is not open to attack by creditors. We spend our working lives attempting to accumulate assets and wealth to support our living standards whilst we are working and in retirement. Superannuation is designed to provide for our retirement and government policies are generally designed to assist us in that objective.  

Governments have changed the rules frequently but the underlying theme is to enhance the individual’s ability to provide for their retirement and reduce the need to rely on government assistance.

The self-employed are always open for attack by third parties. It is this group who frequently fails to adequately provide for their retirement.

One of the government themes is to protect superannuation from attack by creditors. Those who are employed and enjoy superannuation contributions from their employer are less likely to suffer attack from creditors than those self-employed.

It is this group that needs to ensure funds are allocated to their superannuation plans. It is a struggle between providing cash flows to support one’s business and to provide sufficient contributions to one’s superannuation. From an asset protection aspect it is important to ensure that one’s superannuation contributions are maintained.

Smallwood Lawyers, Brookvale Northern Beaches recently had a client who obtained judgment. The trustee in bankruptcy’s report revealed the debtor’s secured creditors and taxation liabilities probably will take most of his assets.

The report also revealed that the debtor held $455,000 in superannuation accumulated over many years. Unless it can be shown that the debtor contributed excessive amounts into superannuation designed to defeat creditors, the debtor will keep his $455,000. It will not be available to the trustee to distribute to unsecured creditors.

This illustrates how important it is to maintain superannuation even though cash flow may suffer.

Smallwoods Lawyers in Brookvale on the Northern Beaches have advised on Asset Protection matters for over 40 years.

ASSET PROTECTION
Personal assets within a family held by the person not liable to attack.

Personal Guarantee’s
If borrowings are needed to acquire assets such as a family home, the bank should be asked to accept a personal guarantee of the working partner if the income of that partner is required.

Whilst the partner giving the guarantee is liable to the bank, at least the asset being in the name of the non-working partner will not be exposed to third party claims. This same principal also applies to other assets such as money in bank accounts or term deposits or a share portfolio.

In the event there is a breakdown of the marriage, the Family Law Act will look to who has contributed to the assets and the future needs of the parties not in whose name they are held at the time of the relationship breakdown.

Gearing
Another tactic is to gear one’s assets and use the proceeds to acquire assets in entitles or persons who are not at risk.

One should seek legal advice before embarking upon any risk management/asset protection path to consider all issues.

It will also be important to consider the ownership of assets in preparing one’s estate plan.

Smallwoods Lawyers in Brookvale on the Northern Beaches have advised on Asset Protection matters for over 40 years.

ASSET PROTECTION
Succession Planning
What happens if a business owner or manager is unable to run the business as a consequence of incapacity or death?

Less than 20 per cent of businesses don’t have a succession plan giving rise to major disruption and often the need to wind up the company. Here’s some tips for an effective succession plan.

5 Key Steps for Effective Succession Planning
1. Appoint alternate directors who may stand in for directors who cannot attend meetings.
2. Appoint a Power of Attorney to sign documents on behalf of the company.
3. Draw up a Will giving the executor the power to appoint a partner or sole trader to conduct the business until it is able to be sold.
4. Consider ‘key-man’ insurance to cover the cost of having to engage others to run the company in the absence of the owner or managing director.
5. Draft a shareholder or partnership agreement making provision for partners or shareholders to acquire the interests of the incapacitated or deceased shareholder or partner.

Smallwoods Lawyers in Brookvale on the Northern Beaches have advised on Asset Protection matters for over 40 years.

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