Safeguarding your family home: A smarter approach to asset protection

In a world of changing risks and complex financial obligations, protecting your home requires more than just good intentions. 

However, finding the right approach means balancing asset protection, tax minimisation, and financial risks. Unfortunately, there isn't a one-size-fits-all solution. It really depends on your unique circumstances, goals and appetite for risk. 

 Why the family home deserves special attention 

For many Australians, the family home (your primary residence) is also your most valuable asset. It is where memories are made, families grow, and wealth is built. It is also vulnerable. A question we hear from many struggling business owners – and individuals facing a difficult life situation – is, “Could I lose my house?”.

Sadly, the truthful answer is often a resounding yes. Whether you’re a business owner, a company director, or simply someone with financial exposure through personal guarantees or board positions, your home can be at risk. 

That is, unless you have taken certain measures to protect the family home well in advance.
Is your family home in your name? 

Many people believe that having their name on the mortgage is crucial to securing the loan or securing new loans in the future. However, the way a loan is structured and repaid can also place the family home at risk.

When the family home is in your name, it is technically your asset. If it is in your and your partner’s name, 50% of the value is at face value your asset. If you have any personal liabilities, assets in your name can be sold to pay debts. 

 What about capital gains tax? 

While the Capital Gains Tax (CGT) exemption for your main residence might seem like a reason to keep things simple, the reality is much more complicated. Since repairs and improvements to your home aren’t tax deductible and the property is usually exempt from CGT, many Australians assume the best option is to own it in their own name or jointly with their spouse. 

 But what happens when: 

• You plan to upgrade but want to keep your current home as an investment.
• You and/or your spouse are involved in a business or serve on a board.
• There is potential for family breakdown, illness or death.
• You have or may guarantee the debts of family members.
• You are facing dispute, litigation, underinsurance or financial stress.

The solution is to find an ideal structure that maximises benefits such as tax minimisation, while mitigating the risk of loss. Finding a strategic balance between ownership and risk is a key element of effective asset protection and one that’s well worth considering while life is going well.

Finding the right structure for your circumstances

 There are many ways to own your family home, including: 

• Individual/joint ownership or wider family holdings.
• Company ownership.
• Within a trust.

Each option comes with its own implications for tax, asset protection and estate planning. Trusts can offer protection but may limit access to CGT exemptions.

Remember that there is no universal solution. Choosing the right structure depends on your goals, risk appetite and personal circumstances. An asset protection specialist can help you understand the pros and cons of the various structures to find the ideal scenario for you. This includes considerations around obtaining future finance, reducing tax, and protecting the family home against high-risk situations.

 Asset protection is not ‘set and forget.’ 

We live in a world that’s increasingly complex and highly litigious. Laws shift, risks evolve, and what worked yesterday may not be enough tomorrow.

A changing landscape demands a strategic response. That is why asset protection, financial risk management and tax minimisation strategies should never be ‘set and forget.’ They need to be reviewed regularly, pressure-tested, and revised as necessary, and adjusted to align with your preferred risk appetite and profile. 

The reality is, the corporate veil no longer offers the protection it once did. Directors can now become personally liable for company debts such as ATO debt, insolvent trading, loans with personal guarantees, statutory liabilities and even environmental breaches, just to name a few. This makes it more important than ever to think carefully about how your personal assets, especially your home, are structured.

Protecting your home is a balancing act, requiring careful consideration of various possibilities, investment strategies and pitfalls. There always seems to be competing interests to consider, and with legislation subject to change at short notice, staying informed is key. 

Want to see how asset protection evolves over time? Watch Rebecca and Rob walk through the key stages of the asset protection lifecycle.

 With asset protection, it pays to be early 

Asset protection is rarely considered by people who don’t feel they have anything to lose. But it’s the first thing in question when life or business plans don’t pan out.

Timing is critical for bankruptcy and insolvency matters; asset protection strategies are far more effective when implemented well before financial trouble arises. The longer the time between setting up a structure and any potential bankruptcy, the less likely it is that a trustee will be able to unwind it under anti-avoidance provisions. For insights on how superannuation fits into this picture, see our article on superannuation and bankruptcy.

That is why it’s essential to seek advice early and throughout your financial journey. Whether you’re a salaried employee, business owner, or planning for retirement, your asset protection strategy should evolve with you. 

 Questions to consider when structuring your family home 

Choosing how to structure ownership of your home is a decision that should be made with care. It is not just about legal titles; it’s about aligning your property strategy with your long-term financial and personal goals. That is why it’s important to have informed conversations with your advisers early on and often. 

 Here are some key questions to consider: 

• How much risk are you comfortable with? How does this align with your wider financial strategies, including tax, debt and business exposure?
• Do you understand the main residence CGT exemption? It is important to know how it applies and where it doesn’t. For example, using part of your home as a business space or being a non-resident can affect eligibility.
• Who in your household carries the most financial risk? Is it one partner, both or perhaps children involved in the family business?
• How serious are the risks? Consider the business environment, your debt exposure and any personal guarantees you’ve made.
• What are the family law implications? In the event of separation or dispute, how will your structure hold up?
• What ownership structure suits your needs? Should the property be held individually, jointly, through a trust, wider family or a company?
• Do you understand the difference between joint tenancy and tenants in common? Concepts like survivorship, severance in bankruptcy and the doctrine of exoneration can have significant legal and financial consequences.
• Could a high mortgage be part of your protection strategy? In some circumstances, leveraging debt against your home, combined with a sound investment plan, can mitigate risk.
• What are the costs of changing course? If you need to restructure or sell, consider the impact of stamp duty, land tax, CGT and mortgage exit fees.
• Who will be paying the mortgage and upkeep? This impacts not only cash flow but also how risk is shared and managed, particularly if bankruptcy is a potential risk.
• What happens if one or more parties become bankrupt? Consider the implications for ownership, equity, timing, and how the trustee may manage the property.

These issues can be complex and varied, which is why a multidisciplinary approach is essential. You will benefit from the combined expertise of business advisers, tax specialists, insolvency and restructuring professionals, financial planners, insurance experts and legal counsel.  

At RSM, we bring these perspectives together to help you make confident decisions. Please contact one of our local business advisers, asset protection or insolvency and restructuring specialists for further information. 

Please note that this update is not intended to be all-encompassing advice, but rather a general overview of the various asset protection, tax minimisation, and financial risk management issues that may arise in respect of the family home and main residence.