Newsletter Articles

Will I lose my house?

Respected accountant, Matthew Snelleksz, is our guest writer this month. Matthew writes an interesting article with an initiative that you might be able to employ as an asset protection strategy for your family home. The topic of Protecting Assets fits in with our “6 Points to Financial Success” methodology.

You have worked hard to buy your own home, you saved money, chosen the right property and have watched it grow in value over the last eight years. For some of us, owning your own home is the great Australian Dream and it would be the most important asset that you will ever own. So why is it that you don’t care if someone steals it from you? We take out life insurance so that our family will be provided for upon our death, we take out health insurance in case we end up in hospital and save on huge medical bills, we insure our motor vehicle so that we are not out of pocket in case we have a car accident, but yet our most valuable asset we leave unprotected!

You have worked hard for this property and enjoyed the rise in its value as the market has increased over the last few years. Let’s say you paid $270,000 for your house five (5) years ago and that it is now worth $500,000. If your home loan balance is $200,000 this means you have accumulated $300,000 in equity. Whilst the bank (secured creditor) is only entitled to $200,000 in the event that something unforeseen happened, other unsecured creditors may still be able recover monies owing to them via the equity in your property. If you run a business or are involved in industry of high risk and litigation this scenario is something which you should consider protecting against.

You may think you cannot protect your equity without selling your property, incurring capital gains tax, or stamp duty. But I am pleased to let you know that there is a practical solution.

The way to protect this equity in your house without selling it is by the simple process of an Equity Transfer. You firstly pull all the equity out of your home to the increased value of the property; this will probably require an increase or refinance of your existing home loan. We then set up a specific Trust and you transfer the money to the Trust. This Trust can keep this money on deposit and cover the interest on the additional loan or it can invest separate from your house. A good thing with this is that the funds are used in the Trust for income producing purposes (investing, earning interest) then the interest that the bank charges you on this increased portion of your home loan is tax deductible interest. If you were to loose your house due to bankruptcy or because of creditors suing you, then you have at least removed the equity, being the money you have paid off on your home loan over the years and the increase in value of the property, by transferring it to a Trust and providing you with asset protection. There would be no point in a creditor selling the house because there is no equity left in it for them to get at.

The equity transfer is simple and offers asset protection that you are otherwise not aware of for your property. The diagram below illustrates how it works:

I urge all business owners, and anyone potentially at risk of having their equity ‘attacked’, to consider this as a way of protecting the built up equity that they have worked so hard to amass. It doesn’t involve selling the property, it doesn’t involve GST, it doesn’t involve capital gains tax, and it doesn’t involve greedy stamp duty. You should be especially concerned if you are a Director of a company through which your business runs because Director’s assets can be personally liable to pay out company debts if problems arise.

Please contact me to discuss and if you wish further information on Equity Transfers. We can set these up on your behalf easily and simply.

Matthew Snellecksz
Snelleksz & Co

Phone: +61 (07) 3422 1022
Fax: +61 (07) 3422 1002
Email: snelleksz@ozemail.com.au