asset protection & loans

Hello,

This topic came up in the middle of another thread and I thought I'd bring it up here. Let's say I want to borrow and access negative gearing benefits, so I don't really want to invest/borrow through a family trust. But asset protection is still an issue since my wife is in a "high risk" profession. So my wife and I choose to invest in my name only since I am extremely unlikely to ever be sued. Does that mean that any loans we take out for investment purposes should also be in my name only??? Or is it still OK, from an asset protection point of view, to have both of our names on the loan but have the assets in my name only???

I've been told by an accountant before that borrowing money and then giving it to a trust can still leave you open to having to cough up the money to creditors one day in the event of being successfully sued.

Considering this, it then seems logical to think that if we borrow money in the names of both myself and my wife, buy property/shares in my name only with the loan, then creditors could have a claim to the amount of money we borrowed in her name, even though they can't get at the investments themselves.

Thanks in anticipation of any replies.

John
 
Hiya John

No, I do not think you will have a problem at all in that regard.

The tax office uses the title ownership as the basis for who can claim the expenses regardless of who is on the loan documentation.

As for the legal issues . . . probably best to seek advice from a solicitor, but, if the loans were normal family loans I do not see that a creditor could pursue your spouse as she has nothing.

The secret is that she "gifts" the money to you and therefore you do not owe her anything. That way, she cannot be forced to collect any loans owing to her and thus the daisy chain is broken.

The same applies with a trust, bye the way.

Does this help?

Dale
 
Thanks Dale,

Just to play devil's advocate, do you think potential creditors could be nasty and get my wife by arguing that the money she gifted to me was in fact loaned to her by the bank and not gifted to her by the bank. Therefore, the loan itself is an "asset" of hers and fair game in any law suit, even though she eventually gifted the money to me??? (Hope that makes sense)

Cheers

John
 
Originally posted by john doe
Just to play devil's advocate, do you think potential creditors could be nasty and get my wife by arguing that the money she gifted to me was in fact loaned to her by the bank and not gifted to her by the bank. Therefore, the loan itself is an "asset" of hers and fair game in any law suit, even though she eventually gifted the money to me??? (Hope that makes sense)
Hi John

No, the loan from the bank is not an asset to your wife. It is a liability and so the creditors would have to compete with the bank for any money or assets that your wife has. This should scare them off, not attract them.

Dale
 
Dale,

Ohhhh. Good point. Thanks for that Dale.

Can I ask a question for anyone out there then....I've read some posts on the forum from people with family trusts that say that they borrow money in the name of the trust. But some other people seem to borrow money in their own name and then gift it to the trust. What are the advantages and disadvantages of each method???

Thanks

John
 


Can I ask a question for anyone out there then....I've read some posts on the forum from people with family trusts that say that they borrow money in the name of the trust. But some other people seem to borrow money in their own name and then gift it to the trust. What are the advantages and disadvantages of each method???
Thanks
John
Hi John!

I hope that you don't mind me answering this again.

The advantages are that no-one can ever chase the person who has gifted the funds to the trust as they cannot ask for it back and so the money is protected from attack.

The downside is that if you want to get the funds back out of the trust it can never be a loan repayment to you which might reduce your options for the future.

There is rarely one "perfect" structure that meets all criteria for everyone. So, it comes down to having certain features that are more important to you tahn other features and then finding the structure that meets that criteria.

Good luck

Dale
 
Thanks Dale,

Hey, I don't mind if you answered every single question I ever put up on the forum. I value your opinion.

It sounds like there are more issues to loan structures that I need to find out about. I'm going to go away now and read up a bit.

Thanks again

John
 
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