Get your business structure right and protect your personal assets
While much is made of the importance of getting the strategy for your business right, typically less thought is given to the importance of putting in place the right asset protection strategies. While the separate and limited liability that comes with a company structure is an automatic and significant asset protection measure, the provision of director’s guarantees and the cross collateralisation of company and personal assets can render that separate and limited liability useless.
We have unfortunately seen a number of instances where mounting business debt and an absence of asset protection strategies has resulted in personal assets being lost.
While a company structure is almost always safer that sole trader and partnership models from an asset protection point of view, in some professions sole trader and/or partnership models cannot be avoided. However, sole traders and partners in a partnership can still take steps to protect their person assets from business creditors.
For example, if only one person in a marriage or long term relationship is involved as an owner of a business, consideration should be given to holding the family home in the name of the “non-business owner” spouse. While this is not an absolutely fool-proof way of protecting the family home from business creditors, it is a much better option than holding the family home in the name of the business-owner.
In terms of other major assets, such as investment properties, consideration should be given to holding those assets through a separate company and/or a trust. Using a trust structure with a corporate trustee is a strong asset protection strategy and can also offer a degree of flexibility in the distribution of income.
When debts push a business over the edge, the loss of personal assets, particularly the family home, can add a great deal of stress and anxiety to what is already a terrible situation. It is important to get your asset protection strategy right as early as possible as both liquidators (in the case of companies) and trustees in bankruptcy have significant powers when it comes to reversing asset-related transactions and/or claiming interests in personal assets.
When done with the right professional advice, asset protection strategies are as important to a business owner as the strategy for the business itself. Don’t wait until something goes wrong to get your asset protection strategy in place, the sooner an appropriate asset protection strategy is put in place, the better.
We place great value on our role as trusted advisers to our business clients and specialise in providing clarity and confidence to business operators. Contact us today to discuss putting in place the right asset protection strategy for you.Back