Many of us have difficulty understanding how we can be financially responsible for a debt or liability through no fault of our own.
A common example is where we act as guarantor for someone for, say, a car loan (for example, your son), and your son cannot make the repayments. If the car is repossessed, and your son cannot meet the residual payment you, as the guarantor, may be liable.
A more compelling example is where parents act as guarantor on the loan for the building cost of their children’s home, the children go through financial difficulties, or a divorce and cannot afford the completion of the build.
Another, unfortunate but common example is where you own joint assets and your partner has an uncontrollable gambling habit. The gambling habit may result in your partner owing others money which could result in joint assets being used to repay those debts.
Small business owners can incur financial issues where they are unable to pay their debts to employees, contractors or suppliers because a major client fails or is unable to pay them.
Therefore, assets that are held in your name may be at risk if such financial action is taken against you.
However, your superannuation has unique status, it is generally protected from such action. This is the case where you have being making regular contributions to your superannuation fund before this financial matter arose. Please note that it is generally too late to make sizeable contributions or make asset transfers to your superannuation fund once the matter has arisen.
The protection of your superannuation assets is clearly very important as you have a much greater chance of rectifying your financial independence, if you have a superannuation balance after the financial matter is resolved than if there were no superannuation nest egg.
At Quinn Financial Planning we pride ourselves on increasing the wealth and financial security of our clients. If you’re looking for a financial planner in sydney to help build your wealth, get in touch with Peter Quinn by filling out our contact form, or give us a call on +61 2 9580 9166 to book an obligation free appointment.