There’s a series of strategies that you have to put in place in business for asset protection.
Take heed because asset protection is the number one defensive strategy for business. In sport, like in business, it is defence that wins premierships and success.
When starting a new business, asset protection needs to be your number one defence strategy and it should be put in place at the setup stage of your business.
When you’re starting in business, we, as advisers, are looking for a fall guy. Usually, the personal partners (hubby and wifey, hubby and hubby, or wifey and wifey) come and see us. One of them is going to kick off the operations and that person is, what we call, the fall guy. The fall guy has to take all the risk in business and be the one to run the operations.
We want nothing over any value in the fall guy’s name. Absolutely nothing! It’s not a perfect world. Bad things sometimes happen to good people. So if a business falls over the fall guy can go with it but hard earned assets built along the journey MUST be fully protected.
This brings me to the first lesson of asset protection.
It’s more than likely that the new business operator part owns their own home and has a mortgage with the bank. The number one thing you need to do in regards to asset protection in business is:
Put your principal place of residence (your home) in the non-business operating personal partner’s name.
We get hilarious reactions when we mention this to clients.
Let me give you an example. John and Jill Smith walk in. Johnny might be the fella starting up a business. He’s also the one operating the business. Therefore, Jill is the non-business person in the relationship. We would look at John and say, “put your house entirely in Jill’s name.” Johnny goes ballistic.
But there’s a couple of good reasons why we suggest this.
You do not want the house you’re living in to be in another structure name like a trust or a company, because those entities don’t get the capital gains tax free concession that the Aussie government gives out. So it has to be in your own name.
And you must have the house in the non-business person’s name, because if the fall guy goes down in business, lawyers will start coming after their house. Having the home in the non-business person’s name protects you from this. The conveyancing cost of taking the fall guy off the property title is minimal, in most states of Australia there is no stamp duty and there is no Capital Gains tax either.
Another vitally important note: if the house is in Jill’s name, and Johnny and Jill have a relationship breakdown, the family court overrides everything. They will ignore the fact that that property is in Jill’s name and they will separate belongings to the way the family settlement is.
So never fear Johnny, you’ll still get half the dough. The family law overrides everything.
There you go, folks. That’s your tip.
Lawyers are out there trying to get their hands on your assets in every way they can. Get your defensive strategy right.