Asset Protection – Does it Really Work? | Rob Balanda

Does asset protection really work?

No it doesn’t if you give your personal guarantee too freely.

An investor, lets call him Paul, was sitting across my desk late one afternoon discussing the mess that he now found himself in.

He had seemingly done everything right.  He operated up til now a successful up market homeware business through a company / trust structure i.e. a company (where he was the sole director and shareholder) operated the business and acted as trustee for a family trust, the beneficiaries of which were his family.

The rent was very high, sure, but so was the income.

[sam id=32 codes=’true’]

He had done well so far using some of his profits and his strong cash flow to buy a strata title retail shop with a tenant who for many years had operated a vibrant retail floor coverings and carpet business.  Paul’s business, and his tenant’s, had survived the storm of the GFC.

The sky was still blue for him and the sun was still shining until the floods hit this year.

Now Paul was many months in arrears with his rent and so was his tenant, with no better prospects on the horizon.

The dark indigo clouds of financial stress were building in the sky and the burden of operating a business without drawing wages for many months was now filling his saddle bags with lead.

After much deliberation he and his wife thought that they would just close up their homewares store, loose the bond they had paid to the landlord as security for rental payments, and look for a job.

As for their retail investment, their tenant told them he would do the same.

When his tenant handed back the keys, Paul and his wife thought that they would pass them onto their lender that provided the monies to buy that property.

Sure, they would loose their 20% equity they put down to buy the property, but like the shop, they thought that they could walk away as they had “asset protected” themselves.

After all, they would still have their house which was in joint names and unencumbered and they would live to fight another day.


After they had left me I pondered over the lease papers for their shop and the loan documentation for their investment property that they bought with them.contract

I saw that Paul and his wife had signed Personal Guarantees (long forgotten by them and buried in the bundle of documents they had signed with their lender and their landlord).

They had overlooked that they had jointly and individually personally guaranteed their company / trust/s obligations under the Lease and the Loan.

The massive losses that had built up over the last year, and that were now compounding, fell squarely at their feet now.

All the money and effort they had put into setting up structures to asset protect themselves now came to nought because they were personally liable under the Guarantees with their landlord and their lender.

How could Paul and his wife had done it better from an asset protection perspective?

They could have told their landlord that they were not prepared to give personal Guarantees, but would instead increase the amount of the security bond for the rental.

meeting-the-parentsThey could have offered to pay 4 months rent as a bond instead of the 2 months rental figure they had paid, or even 6 months if they had to in order to avoid the Personal Guarantees.

Likewise, with their lender they could have increased their equity in the property to say 1/3rd  rather than the 20%.

This could have avoided the need to provide Personal Guarantees which the lender insisted upon as they only put down a 20% equity, even if they had provided this additional equity by drawing down in their interest in their home to provide it.

At the end of the day Paul should have followed through his asset protection strategies by limiting the liability on his business and property venture and not provided the Personal Guarantees.


Subscribe & don’t miss a single episode of Michael Yardney’s podcast

Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.

Need help listening to Michael Yardney’s podcast from your phone or tablet?

We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.


Prefer to subscribe via email?

Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.

Rob Balanda


Rob is a partner in the Gold Coast based law firm MBA Lawyers. He is a highly regarded educator of property investors and estate agents and the author of the "Made Simple" series of books and CD's.

'Asset Protection – Does it Really Work? | Rob Balanda' have 2 comments


    November 24, 2014 David

    Is the risk of a personal guarantee for a commercial property different to one given for a residential property?
    Or it doesn’t matter?


      Michael Yardney

      November 25, 2014 Michael Yardney

      David – I guess Rob’s point was really personal guarantees are sometime necessary – in fact often necessary with banks – but they are all encompassing and cut through the veil of trusts etc with regard to asset protection


Would you like to share your thoughts?

Your email address will not be published.


Copyright © Michael Yardney’s Property Investment Update Important Information
Content Marketing by GridConcepts