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How to protect your assets | Strategies

Protecting your assets

It is important to set up an effective asset protection plan to ensure accumulated wealth is secure from unforeseen circumstances. Here are some ways a person can safeguard their assets from unplanned events, and people with vested interests.

Most people work hard in order to accumulate wealth and property for a comfortable lifestyle, or to pass their assets onto their descendants upon death. However, many also make the mistake of leaving them unprotected.

It’s important to safeguard assets from anyone who may have an interest in them, whether they are creditors, relatives, ex-spouse and in-laws, or the beneficiaries themselves.

Having a valid strategy in place can protect assets from unwanted parties, and ensure that they are passed on to the intended beneficiaries.

What are ‘assets?’

Assets are items or properties that have monetary value, and may be owned by individuals or groups of individuals.

Assets may be tangible or intangible such as cash, real property, businesses or patents and intellectual properties.

What do assets need protection from?

A person would want to keep the assets they worked hard for, especially if it is something big like a residential property, but they can lose their house to fire, flood, creditors or an ex-spouse.

Preparing for the unexpected may prove more valuable in the long run.

Some ways to effectively safeguard important assets

Here are some strategies to protect assets.

Insure valuable assets—including yourself!
One way to safeguard assets from unexpected events is by insuring them—and that includes the individual’s life.

A person’s health and life are more valuable than the accumulated wealth over their lifetime. Having a health insurance or a life insurance with provisions for health and disability would ensure that medical expenses may addressed without selling assets.

It is also good to have valuable properties, such as the house and car, insured. This way, the policyholder may receive funds for replacement or major repairs.

Pre-nuptial agreements

Most couples probably don’t want to think about separation even before tying the knot, but discussing the possibility is necessary, if only to protect both parties from financial ruin when it does happen.

Pre-nuptial agreements and binding financial contracts are the least romantic thing to present to partners, but it can be an effective way to protect individually owned assets.

Pre-nup, children, exes and in-laws
Exes and in-laws may step to claim assets that originally belonged to one party, but has become conjugal property through marriage.

In case of one party’s death after remarriage, their ex-spouse or their kids could come after the deceased person’s assets. Without a pre-nup to separate individually owned assets, even the current spouse’s personal assets that were obtained during the marriage may be taken.

A last will and testament is not enough assurance. Beneficiaries written in the will can still contest its contents in court, which may lead to a long legal battle.

Assets of unmarried couples
A person’s partner, as well as children born from their union, have a right to their assets if the Family Court of Australia finds that their relationship is a ‘De Facto Relationship’,” as defined in the Family Law Act 1975.

The couple doesn’t have to live under the same roof to be considered a de facto relationship, so the best protection is still a binding financial contract or a pre-nup.

What if only the children are the intended beneficiaries?
This arrangement is possible by creating a trust.

A neutral third party may serve as a trustee, and they must ensure that the children will receive assets, instead of related parties with a vested interest.

Protection from personal financial liability
A person may be sued by creditors and forced to sell their assets to pay their debts. Unlike a few decades ago, however, filing for bankruptcy is no longer a safety net for debtors.

Simply transferring assets to a non-risk person like their spouse or child will not work, especially if the creditors contest its validity, and the court rules the transfer as a fraudulent transaction.

One way to protect properties is by setting up a trust and ensuring that personal and business assets are kept separate. That way, business assets are safe from personal risks, and personal assets and safe from business creditors.

Talk to an expert about setting up the right kind of trust.

When it comes to asset protection, prevention is better than cure

Simply transferring an asset after or around the time a claim is made does not mean it is protected from interested parties.

Instead of doing nothing until it is too late, it is best to make sure that legal documentations and agreements are set up to protect assets as early as possible.

 

This information has been sourced from the Family court of Australia, ASIC's Moneysmart and Chan & Naylor.

How to protect your assets | Strategies
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