Monday, March 15, 2010

In times of peace - prepare for war

Two weeks ago, I explained the importance of reviewing all loan accounts and unpaid present entitlements in the context of asset protection issues.

As flagged, that particular client situation was also problematic for a further two reasons. Those reasons were:

1. Both the husband and wife were directors of the trading company, even though the wife had no active involvement in the business.
2. Both the husband and wife were shareholders in the trading company.

Aside from the fact that the trading company had a large asset on its balance sheet (being the loan or UPE), the wife was also personally liable (automatically) due to her directorship. This issue could have been avoided by simply resigning her as a director. There is a further related practical tip in this regard that all advisers should be aware of and I will explore this further within the next couple of weeks.

The second issue was that the husband (who had to be a director because of the level of involvement he had in the day-to-day operations of the business) personally owned shares in the trading company.

As a director, the husband carried personal liability and this means that his personal assets (including his shares in the trading company) were exposed.

Unlike the loan account issue, the strategies available in relation to the share ownership were ones that could only really be implemented subject to the bankruptcy clawback rules which (at a minimum) would delay any protection in relation to the shares until four years after divestment.

As usual, until next week.

Matthew Burgess