Asset Protection Tips

Here is a tip for young players.

When purchasing property consider the 'structure' of the ownership of the property and the short term and long term asset protection issues.

structure doesn't necessarily mean ownership via a trust structure. When a couple are purchasing property they should consider whether to buy in in one name or both names. If both names then whether joint tenants or tenants in common. If tenants in common then equal shares or unequal shares.

From what I have seen the consequences of co-ownership is rarely considered. The co-owners may ask the lawyer what the difference is between TIC and JT and they may decide on the spot without considering the consequences.

When deciding, from an asset protection point of view you should consider:
Bankruptcy
Incapacity
death
family law separation

Generally the home should be owned in the name of the spouse who is less at risk of being sued. Anyone in business is at risk, no matter what the business is. But this leads to different asset protection risks.

e.g. A and B buy the property in A's name only as B is a business operator. B doesn't have any legal interest in the property. What this means is that A could:
Mortgage it
Sell it
transfer it as a gift
lease it
leave control to someone else by appointing an attorney
leave it to anyone in A's will.

If A and B buy the prooperty and then B is keen on investing and A is not then A may not agree to increasing the loan on the property for further investing.

A and B may have a dispute and A could cut B out of the will and leave it to the RSPCA.

A could appoint her mother as attorney and then suffer an accident losing capacity. B now has to deal with the mother in law.

A could later go bankrupt and lose the whole property.

A and B could divorce. For the family law proceedings A may be able to show more contributions for this property - B had nothing to do with it.

A may enter into a long term lease of the property without B's knowledge - especially if commerial.

A may decide to set up a LOC to lend money to uncle Harry who has a great idea to manufacture and produce Yogurt made out of organic Yak milk.

Solution - partial - is that B could lodge a caveat noting B's interest in the property due to contrbibtions to purchase price or going costs etc. But this then dilutes the asset protection of the property. But A could still leave the property to others in her will.

Solution - but in joint names. Not ideal as either going bankrupt would mean lose of that person's interest. Go 99%/1% of title? This will mean both have to go on the loan - bad asset protection - yet B only owns 1%, but is liable for the whole loan. Also eats into serviceability.

If they do buy jointly then JT or TIC? Depends. if someone is likely to challenge the will then using JT will mean the property doesn't pass via the will but automatically on death. This can be good, but what if both A and B die in the same accident? The property will pass outside the will from the eldest to the youngest and then it will go via the will of the youngest - if no will then the intestacy laws based on the youngest person as the owner.

Imagine A and B have children from previous marriages. A is older. Both A and B dies in a car accident, death is instant so it is presumed that A dies first. B inherits A's share of the property and B has brief ownership of the whole property. The property then goes via B's will to her children and A's children miss out. This could possibly be challenged but court cases like this cost a lot.

Imagine also what could happen if A and B own property as JT. B is just about to become bankrupt because the business fails. A suddently dies in a car accident 1 day before B becomes bankrupt. B automatically inherits the whole property and then next day the trustee in bankruptcy takes control and sells the property giving the whole proceeds to creditors.

With JT there is no opportunit to leave one's share via a testamentary trust. So A and B could own an expensive property with large rental income. A dies and B inherits automatically. If they had owned as TIC A could leave her share to a testamentary discretionary trust. So if A died B would own 50% in own name and 50% in a trust. The income from the trust could then be diverted to children who each would get $20k pa tax free (s102AG). This could save a fortune each year as well as provide asset protection if B later when bankrupt B would lost 50% of the property instead of 100%.

There are heaps of things to consider above, but also other factors such as land tax, income tax, CGT, social security, etc.

As you can imagine there is no one right way or wrong way to structure thing as it will depend on the situation of each person/couple and everybody will have slightly different requirements.
 
Great article Terry. Some examples of when you would have a mix of tenure types for different parts of the portfolio would be useful and the issues that could arise. Eg: PPOR as JT, other properties as TIC with Testamentary Trust established in the wills.
 
Great article terry, well done and kudos

It seems that when two people buy a property buying in either names alone is not a good idea and from a pure protection perspective it's good to have both names on thee mortgage even though it's twice as much paperwork
 
Terry,
You didn't touch on a legal liability that a professional may be sued for, eg occupation such as, doctor, lawyer, accountant/financial planner

Any tips on this area or other professions
 
This is just a brief explanation of the ways to structure the purchase of a property. I have been writing a book on asset protection and have over 250 strategies/tips for things to consider - so far. I might make a few different threads with different things to consider.
 
Great article terry, well done and kudos

It seems that when two people buy a property buying in either names alone is not a good idea and from a pure protection perspective it's good to have both names on thee mortgage even though it's twice as much paperwork

I would generally think the opposite. Better to buy in one name only with one name on the loan. If the both spouses are on the loan then the asset protection halves as they are both liable for the debt.

Of course the best way to own would be via a discretionary trust, however this is not always practical because of land tax and other factors.
 
Correct me if I'm wrong but if you own a business and have public liability insurance wouldn't that cover you should you get sued? Wouldn't they just pay out and your assets are safe?
 
Correct me if I'm wrong but if you own a business and have public liability insurance wouldn't that cover you should you get sued? Wouldn't they just pay out and your assets are safe?

You are wrong, or maybe partially correct if you are sued for negligence - you may be covered. But you also may not be covered. e.g if you are a lawyer and inadvertantly give financial advice to a client and they suffer a loss. Your lawcover insurance would not cover you for non legal advice.

But what if you are sued over a contractual matter, such as not having enough income coming in to pay the rent on the office. Or if you are a computer contractor and you make a mistake costing the compay you contract with money and have agree to indemnify them of their loss.
 
What if you are a business owner trading as a company owned by a shelf company that's worth $1? (As long all your assets are outside the company)
 
What if you are a business owner trading as a company owned by a shelf company that's worth $1? (As long all your assets are outside the company)

Not sure what you are getting at??? If the company contracts it can be sued. Sharholders cannot be sued unless they give a personal guarantee. Directors are generally not able to be sued unless they break the law or cause the company to break the law = OHS issues, insolvent trading etc

Directors are often required to give personal guarantees and they would therefore be at risk if a guarantee given.
 
Not sure what you are getting at??? If the company contracts it can be sued. Sharholders cannot be sued unless they give a personal guarantee. Directors are generally not able to be sued unless they break the law or cause the company to break the law = OHS issues, insolvent trading etc

Directors are often required to give personal guarantees and they would therefore be at risk if a guarantee given.

Shareholders arent usually party to an action against a company. The s/h also cant sue the company in most instances. However the buck can rest on the company officers. Choice of officers can be an important strategy but merely imposing a "stooge" as a Director is a masssive risk. It is more common to use an avoidance approach. For example a wife wont also be a DIirector along with husband. This can limit that risk but doesnt bypass it. Directors can be held liable for a huge range of matters. Some include:

Directors Penalty Notices (Unpaid super, PAYG)
Insolvent Trading
Criminal Offences under Corps Law (eg failure to change a Reg office !)
Liquidations - Liquidator claims
Director Guarantees (often overlooked eg lease losses and refit costs)
OHS
Employee claims under Fair Work Act found to be crimes or where the Director acts to windup the company etc
ATO Trustee liability
Crimes - eg illegal use of IP (Getty images etc), software etc
Defamation
Events occasioning death

And even then there have been claims by creditors against a company that the Co was a "alter ego" of the Director. The Westpoint fiasco led to a decision against a financial planner in such circumstances. The court lifted the corporate veil and found the company was the alter ego for the individual. Claimed asset protection was gone.
 
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