Asset Protection Strategy

The key to an effective Asset Protection Strategy lies in timely and careful planning. There are a variety of possible strategies but everyone's circumstances are different, and what works for one person cannot always be applied to others.

The most common form of Asset Protection Strategy is insurance: ensuring comprehensive coverage to an appropriate level is an easy and quick means of providing basic asset protection. Always be careful to read the policies and ask if you do not understand. Umbrella policies can also be a very effective tool.

The situation is obviously more complex for people who own and operate businesses. Wherever possible, a business should be run through a structure that limits personal liability. For instance, the formation of a limited liability company to conduct business provides greater protection for personal assets than operating through a partnership of individuals. It may sound basic but many individuals run their business affairs as a sole proprietorship.

Transferring the assets into the name of a low-risk individual's name, usually that of a spouse is another asset protection strategy that can prove useful. This strategy has been used since time immemorial however litigators can name both husband and wife in a lawsuit. The other matter is what if a lawsuit comes from something unexpected that directly affects the low risk individual. A slip and fall on your property, a car accident that triggers punitive damages above and beyond your insurance. A last consideration is the strength of your relationship with your spouse.

Another Asset Protection Strategy is to transfer assets into a discretionary trust. This trust is for the benefit of a family as a group but without any individual family member having a "fixed" interest. The assets are protected in the event of bankruptcy, unless they can be "clawed back."

Superannuation or a Defined Benefit Plan is a very effective method of asset protection. By placing assets within a superannuation fund, they are usually protected from creditors.

In some countries, entering into a maintenance agreement with your spouse using family law is another asset protection strategy for protecting assets from creditors. However, once again, this strategy should be approached with consideration of the relationship with your spouse.

A concept known as "negative gearing" may also provide protection for assets. This is done through borrowing against current assets to create a mortgage over them. This reduces or eliminates "ownership" of the asset, making it unavailable to creditors in the event of bankruptcy.

These are just a few of the available asset protection strategies. Once again, however, what is appropriate for one person will not necessarily suit another. So be careful. Timely planning is the key.