Do you have an asset protection plan? It could be the key to securing your financial future. During the 2022-23 financial year, the Australian Financial Security Authority recorded 9,930 personal insolvencies. That’s almost 10,000 Australians who may have had assets seized to repay debts.
Despite this, many investment property owners don’t have any asset protection strategies in place. This leaves them vulnerable to having their assets seized if they ever face financial difficulties that lead to insolvency. So, what is asset protection?
What is Asset Protection?
It’s a term used for the legal strategies a property investor may use to protect their assets from potential risks and financial liabilities. The primary goal of asset security is to shield a person’s possessions from being seized in order to pay off debt.
This usually involves a combination of legal structures, financial planning and risk management techniques. Because it’s a complicated process, with high financial stakes, it’s essential that property investors seek professional advice on how best to secure their assets.
What Are the Benefits of Having Asset Security?
Having a structure in place to protect your assets provides a wide range of benefits for investment property owners. It can:
- Protect Your Investment: Your assets will be safeguarded against common financial risks, such as lawsuits, creditors, bankruptcy or even divorce.
- Enhance Creditor Confidence: Lenders will be more likely to approve future loan applications if you have a robust strategy in place to protect your current assets.
- Give Peace of Mind: You can rest assured that your assets are secure, even if your financial situation changes dramatically due to unforeseen events (for example, the economic upheavals experienced during COVID-19).
- Ensure Financial Stability: Protecting assets will enable you to plan for your retirement and preserve your hard-earned assets for the long-term benefit of your family.
Ultimately, a proactive approach to protecting your investment property will empower you to navigate unexpected challenges with greater resilience.
What Asset Protection Strategies Can Investors Use?
This is one of the most popular forms of asset security used in Australia. With this arrangement, the asset is owned by the trust (often a Family Trust), not the individual. This means that if any of the trust beneficiaries face insolvency, creditors won’t be able to claim assets held by the trust.
If you operate a business as a sole trader or in a partnership, there’s no legal separation between personal and business assets. This means that business creditors can make a claim on personal assets. However, a company is viewed as a distinct legal entity, protecting your personal assets from business-incurred debts.
If you’ve just started up your own business but your spouse is a long-term employee of a large corporation, then you represent a greater level of risk than your spouse. In this scenario, transferring assets to the lower-risk spouse would offer greater protection, while ensuring the asset stays in the family. Keep in mind that this strategy won’t work if you’re already facing claims from debtors.
This can be one of the simplest ways to protect your assets because it gives you financial coverage against risks and liabilities. If you have property, liability and professional indemnity insurance (or whatever form of insurance is necessary for your particular situation), this can soften the financial impact of an unavoidable lawsuit, natural disaster, or accident.
Talk to Positive Income Properties About Asset Protection
It’s never too late to protect your assets. But you could save a significant amount of time and money by having strategies in place before you buy. The key is to get the right advice.
At Positive Income Properties, our process includes tailored support for every stage of your investment property journey. This includes exploring asset protection options before finalising your purchase. To get started, book a call with the team at Positive Income Properties today.
