Frequently Asked Questions
Why do I need asset protection? I am a good person, why would anyone sue me?
There are many reasons why you need asset protection. The fact that you are a good person and do what is right does not mean that you will not be sued.
People get sued all the time simply because some greedy golddigging predator wants a slice of their assets.
It happened to me a few years ago when I was clearly in the right! I was sued by a lady for not giving family law advice in a tax matter even though my letter stated I wasn’t a family lawyer! The lady admitted that she had a sick kid, and she had run out of time (by law) to sue the family lawyer she had used.
Other reasons include:
- Lawsuits are increasing daily, and NSW, for example, has the second highest lawsuits per capita in the world (after California)
- Insurance may not cover you, eg. if you don’t tell the insurer everything they need to know (duty of disclosure) or you are reckless in your obligations
- You can be liable for the debts of others in your business in some circumstances, no matter how well protected you are, eg. you’ve been a partner in a partnership because of what your accountant told you to do, so you become liable for your partner’s debts
- You may be liable for back taxes & penalties or fines because the government arbitrarily changes an administrative policy, eg. one of my friends who runs a business was fined $4 million because the government changed the spam laws and backdated them to his business!
- You may be unjustly sued and lose the case because the other side has a better lawyer
That’s all very well and good, but I believe that we should all pay our debts. I don’t want to dodgy things to avoid paying my debts.
I’m not suggesting that in any way. However, as per my example above, many people
I have an insurance policy for professional indemnity (PI insurance) and rental properties. Surely that will protect me if I am sued? That’s what I have been told.
You may get a surprise.
You have public liability insurance for rental properties and professional indemnity insurance if you are in a high risk profession Your insurer may not cover you because you breach the fine print of the policy? Or you may have a large excess and be forced to defend an unfair lawsuit.
I already have a company and trust. Does that mean I am now protected?
Not necessarily. It depends upon how your company and trust is structured.
As stated above, look and see who are the directors and shareholders. Not just that but you may run a business and own personal assets in the same trust. If so, your personal assets are at risk.
If you have any doubt, get some independent advice.
I am an employee. Surely I don’t need asset protection?
You must certainly do. Don’t be deceived.
As stated above, Houghton v Arns shows very clearly that an employee can be liable. In practice employees are not sued very often, but this does not change the fact that they can be sued, and can be liable.
I’ll wait until I make some money and then I’ll worry about asset protection. After all, it is very costly, and I’d rather use my money to make some money first. Surely that makes more sense?
That’s like saying you’ll hold off spending costs on the foundation for a house and build the house on the sand to save some money. In the short term you will save money, in the long term the house won’t stand.
Trying to change things later on is not only costly, but may take years to be effective because of bankruptcy clawback rules which allow the courts to reverse transactions.
Why can’t I just change it later on? If someone is going to sue me, I’ll worry about it then …
As stated in the example above, if a lawsuit is pending, or has already begun, and you transfer an asset into a company or trust, or into your spouse’s name to avoid losing it, the court has the power to reverse the transaction.
And the High Court has shown a willingness to do it in recent times.
You must ensure that you are structured correctly from the beginning. Once a lawsuit is pending it is usually too late. To protect your assets at that time, you would have to incur great expense with no certainty of saving your assets.
What do I do if I already have a house in my own name?
You can transfer the house into a trust, but you will be liable for stamp duty, and possibly capital gains tax.
The other option is to use mortgage allocation, eg. assume you are buying another house for $500,000 (House 2). You already own a house worth $400,000 no debt (House 1). You buy House 2 in a trust. You borrow the money and secure it over House 1. So if you are borrowing $400,000 for example, you simply have that on House 1. The effect is you own House 2 in a trust worth $500,000, no debt, and House 1 in your own name, worth $400,000, with $400,000 debt. Suddenly you become less attractive to a potential creditor because House 1 is effectively no longer available, because the bank will get the first bite on the cherry if you get sued and have to sell House 1.
What about the Family Court? Can I keep them away?
With great difficulty. The Family Court have the power to look straight through trusts. And they take a dim view of people doing “shifty” transactions (as they see it) to prevent their spouses getting their lawful entitlements.
Any asset protection to avoid the family court needs to be undertaken with immense care.
Can I just use an overseas trust?
Not really. Buying Australian assets through an Australian trust can cause immense problems. You have legal limitations with respect to buying residential property in Australia through an overseas company or trust. And you may run foul of the Australian Taxation Office.
Again, be very careful if you are looking into anything of this kind. Make sure that you book in with a specialist asset protection or overseas tax expert in Australia.
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