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Asset Protection: Know the Rules

Given the current problems with P.I. Insurance many people are asking what implications exist in regard to assets held in Trust in the event that a problem occurs in the future with their P.I. Insurance and they have to become bankrupt.

Below are answers to three (3) commonly asked questions:

Q1. To what extent would my spouse's assets be caught in the event that I have to become bankrupt?

A1. The spouse's assets will not be caught by your bankruptcy provided:

• the spouse is not a partner to your business
• the spouse has not guaranteed your debts
• the spouse's assets have not been encumbered to secure your debts
• the spouse's assets were legitimately acquired by the spouse and were not transferred to the spouse by you for the purpose of defeating your creditors

Q2. To what extent is my superannuation safe in the event that I have to become bankrupt?

A2. The Bankruptcy Act provides that a Bankrupt can retain:

• policies of life assurance or endowment assurance in respect of the life of the bankrupt or the spouse of the bankrupt; and
• funds in a regulated superannuation fund, an approved deposit fund or an exempt public sector superannuation scheme, and
• funds in a Retirement Savings Account. provided that the total value of the above three (3) items does not exceed the Bankrupt's Pension Reasonable Benefits Limit

It should be noted that proceeds from the above three (3) categories that are received by a person prior to bankruptcy would be lost to the creditors of the bankrupt estate. However, proceeds received on or after the date of bankruptcy would be retained by the Bankrupt subject to the Reasonable Benefits Limit test mentioned above.

Q3. What would happen if my spouse died and left me her assets prior to my bankruptcy?

A3. In the event that a person receives an inheritance prior to or during the three (3) years of bankruptcy, then same would vest with the Trustee for the benefit of the Bankrupt's creditors.

To avoid this scenario, legal advice should be sought in regard to the spouse creating a Trust in his or her will to ensure that any inheritance would not vest on the person who has the bankruptcy potential.

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