Newsletter Articles

Protecting Your Hard Earned Assets

Do you have a margin call due? Is your business at risk because your clients are not paying their bills? Now more than ever in the current business environment – you need to protect your assets. This month’s guest writer, Merthyr Law, gives us some important tips.

We would all like to limit our liability so that in the event of a claim against us, whether in respect of our business or some accident, we may go personally bankrupt but we do not lose our home or other investments.

There are various insurances that we can / should take out as part of a prudent asset protection strategy. Insurances alone may be insufficient. What if the insurer rejects the claim, what if the amount of cover is insufficient, and so on.

There are three or four methods which can be used to protect our assets. Probably the most well known method is to transfer assets to spouses or trusts. Unfortunately, the transaction costs often outweigh the benefits of trying to protect the asset, i.e. in the case of property, stamp duty of up to 4.4% can be imposed in Queensland and Capital Gains Tax can often be at a rate of 46.5%.

Another option is to put yourself in a position similar to a Bank by using an entity (trust, etc) you control to become a secured mortgagee over your own assets. The benefit of using this type of structure to limit your liability is that there is no duty and no CGT. You can protect existing properties, shares and other assets without triggering stamp duty and CGT.

Whether you transfer an asset to a spouse or to a trust or become a secured creditor of your own assets, all these methods are subject to review under the terms of the Bankruptcy Act. Where a method is employed to avoid creditors, transactions can be set aside for an indefinite period of time.

If you have no claims against you, have good business practices and if you implement one of the asset protection methods you ought to be protected from any review under section 120 of the Bankruptcy legislation after four years, i.e. if you enter into a strategy to limit your liability, you had no claims against you and you were solvent at the time, then after four years the transactions could not be set aside.

If you would like to learn more about various strategies to limit your liability then please contact Steve Grant or Kieran Hoare on (07) 3252 5044.