Financial Planning

Financial planning or debt avoidance

Given the current economic situation many people are wondering how to protect themselves and their assets in the event of a further downturn. Some are already in financial trouble and others just want to ensure that in the event of their business having to fold they do not lose everything, especially the family home.

There are many urban myths and we have all heard stories such as Mr X went bankrupt and kept his helicopter or Mr Y shut down one day and reopened the next under a different name. We also hear statements such as 'the man down the pub' told me to put everything in the wife's name and go bankrupt. While there is potential to trade after insolvency this ability to trade or to protect personal assets is invariably down to good financial planning and not as a result of any dubious practices.

One effective means of protecting personal assets is to form a limited company whereby the liabilities are limited to the assets of the company and personal assets are not at risk. In the event of the company entering insolvency it is possible for the existing directors to purchase the assets and form a new company which can commence trading immediately with no debts and often from the same premises. This is often referred to a 'Phoenix' company since it rises from the ashes of the old one. However, forming a limited company does entail more stringent legal responsibilities and your accountant will make you aware of the dangers as well as the benefits.

If you do not have the protection of limited liability and are struggling financially your personal assets are at risk. If you do try and transfer assets to a spouse or relative this transaction could be set aside very quickly unless full value was paid for the asset at the time of the transfer. There are serious sanctions for hiding assets from creditors and you could even leave your spouse or relative open to bankruptcy proceedings themselves. This is clear debt avoidance.

There are remedies for those in financial trouble that legally protect your home and assets and an insolvency practitioner can discuss these with you. Whether sole trader, partner or director it is vital to seek advice early and most insolvency practitioners offer a free, confidential, no obligation consultation.

Author: Michael Peoples