Protecting your client’s assets

What would happen if one of your clients faced bankruptcy? Would you be able to protect their assets from creditors? What about their superannuation? Could that be protected from the bankruptcy trustee?

In a climate of increasing litigation and concerns over the availability of professional indemnity insurance, Macquarie’s David Shirlow believes his presentation to theFPAconvention on Thursday, October 9 has particular relevance.

Shirlow will be presenting a session on protecting clients’ assets using superannuation in the event of bankruptcy.

He will outline the effects bankruptcy has on clients and they are not pretty — a client’s assets and 50 per cent of their income above a certain threshold may be available to the trustee in bankruptcy to be distributed to creditors. The client may have their rights to travel curtailed. Furthermore, bankruptcy may also impact on the client’s ability to continue business and to borrow money.

“The bankruptcy law is about fair treatment of creditors,” Shirlow says, “but also about giving the bankrupt an opportunity for a fresh start.”

In particular, Shirlow’s presentation will focus on the asset protective qualities of superannuation.

“I will be looking at whether, in the event of bankruptcy, protection is available to an investor’s super with regard to various contributions that may have been paid and also various benefits which may have been paid,” he says.

The way in which contributions have been paid and the way and timing of the benefits payments will, he says, have a bearing on the protection available.

“On the contributions side, one of the key questions is whether the contributions could be attacked under various provisions of the Bankruptcy Act. On the benefits payments side, a lot can hinge on whether or not the benefits were paid before or after bankruptcy occurred and whether it was paid as a pension or a lump sum.”

Shirlow will briefly present the scope of protection available for those assets held in non-superannuation structures. These include various forms of trusts that may protect assets from bankruptcy. He will also discuss the scope to have assets held in the name of lower risk family members.

Shirlow will also cover estate planning considerations in relation to super, which have an impact in the event of bankruptcy.

The ability to protect a client’s assets, Shirlow argues, is an important consideration for all financial planners and should be a factor in all wealth accumulation, estate and financial planning strategies.