When business confidence softens: Protect your personal assets

Safe lock code on safety box bank

When the economy is perceived as unstable, business confidence falters. With an increase in bankruptcy cases also fuelling concern, personal wealth protection has become a top priority for many clients.

Following on from my article on Restructuring for asset protection (July 2016), I have received a number of enquiries around personal wealth protection strategies; in particular the areas most exposed to risk, including protection of personal assets with minimal transaction costs.

The root of bankruptcy

Personal bankruptcy involves an attack on any equity held in personal assets, such as the home, investment properties or share portfolios. The causes of attack are numerous and include:

  1. Breach of personal guarantees such as mortgage or lease guarantees;
  2. Director’s personal liabilities under Corporations Law, such as insolvent trading and breach of director’s duties, resulting in penalties of up to $200,000;
  3. Australian Taxation Office director penalty notices for pay-as-you-go and superannuation guarantee charge liabilities, for which the director is personally liable;
  4. Non-insurable events such as property damage caused by driving recklessly or whilst under the influence (DUI) of alcohol or drugs; or
  5. Personal professional liabilities not covered by professional indemnity (PI) insurance, such as:
    • fines, penalties and punitive damages;
    • breach of employer obligations to employees, including damages claims for workplace bullying and harassment; and
    • employee-caused, non-insurable events (set out in point 4 above) whilst working, resulting in the employer becoming vicariously/automatically liable.

Achieving personal wealth protection

Wealth protection strategies quarantine personal assets in the unfortunate event of a creditor attack, and can be implemented without tax or stamp duty implications.

Such strategies must be in place before any hint of bankruptcy arises – that means now, before it’s too late. The bankruptcy 5 year claw-back and 6 month relation-back periods provide power to the bankruptcy trustee to undo related party transactions that occur within that 5.5 year period.

It’s always best to plan for the worst case scenario when protecting what is important. A personal wealth protection strategy can be seen in a similar way to health insurance: once you serve the waiting period you are covered. It can be a saving grace in the event of an unpredictable crisis.

Call me on 07 3223 6100 or email trungv@redchip.com.au to discuss Redchip’s personal wealth protection solutions for your clients.

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