What is Asset Protection?

With insolvencies on the rise given the current Pandemic, the need for directors of companies and business owners to protect their assets is even more critical as they could be named in litigation proceedings along with their company.

The aim of asset protection is to safeguard assets from legal, business and political risks. Protection may be achieved by establishing a secure and effective structure of ownership of assets to protect the assets.

Pre-planning and regular reviews of the business structure and method of owning personal assets are essential for effective asset protection.

What Asset Protection is available for property investors?

Investing in property can pose risks that might result in legal proceedings. Asset protection for property investors can be achieved by implementing the following protections:

  • Insurance: Having an insurance policy in place on a property can help protect it against risks and is a popular asset protection method used by property owners. Insurance policies can cover a wide range of issues, so it is always advisable to have a legal professional review your policy documents to gain knowledge of both the inclusions and limitations under the policy. This can help minimise any potential disputes with the insurer in the case of a claim. While insurance can mitigate some of the financial damages assets are exposed to, due to the complexity of some insurance claims, coverage should not be seen as the sole path to asset protection.
  • Compartmentalisation of Assets: This is the process of separating assets from risks and liabilities. One of the ways of doing so is establishing a limited liability company for each asset. These provide boundaries between assets and prevent lawsuits against one entity affecting other accumulated assets.
  • Use of Shell companies: A shell company is used as the face of the business and even though the company owns nothing, legally it is shown to operate everything. Employment of this method separates personal assets from business assets. Additionally, it helps protect personal finances if the business must declare bankruptcy or defaults on a loan.
  • Anonymity: Having an anonymous trust makes it incredibly difficult for lawyers to connect the trusts to any Limited Liability Company and hence protects the asset when a law suit is instituted against the business.