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Tuesday, September 11, 2012

Fatal mistakes that new relationships make!

Is this a second marriage or a new relationship after a breakdown?

Keep your financial situation separate:
Generally it is better to keep your finances separate.
Except for a joint bank account which is used to pay all the budgeted joint expenses.
A sum of money from each party can be deposited into the joint account each month.
This way the financial well being of both parties is maintained and the opportunity for fraud is reduced.
If a person has a problem with this, RUN.....

Only own things together as "Tenants in Common."
Always have a written agreement which states the proportion you each own - kept with your executor. This means that your share of the asset is always dealt with by you and your estate.
In "Joint Tenants," the ownership of the asset automatically passes to the survivor on death of the other. It does not go through your Will, nor can you say what happens to it.

On sale of a "tenants in common" asset, hold your own share in a separate bank account.
All too often, the money is put in a joint bank account, one of the parties dies, and the funds go to the other person immediately.
It wont matter that you had "both must sign" on the account.

Always have a Will which states your wishes.
Draft it with your beneficiaries involved, with legal help, making certain your partner is informed and aware.
Avoid relying on your partners good nature - "if you die first, I'll make certain your kids get a share."
It can work, but is imprudent to allow the potential for abuse.
Consider how long the person can live in the common home before it must be sold.
Probably better to consider 1, 3, 5 years, or whatever suits you both.
It can create enormous ill-will and heartache when people are forced to wait for an estate.

Suit yourself, however be business-like.
If you are older than 21, you may have had more than one relationship.
In business, written agreements are the norm and potential conflict is discussed and reduced.
Financial arrangements are business arrangements.
Protecting your financial well being is protecting your life - it should be done thoroughly.
If you play it like a game of chance, you stand to lose a huge amount.

Share a life together with joint decision making.
People who understand that a person needs to be prudent, are perhaps the ones to get and hold onto.
Bullying, pouting, pleading do not indicate the relationship will go far.
Make decisions jointly, with all the factors considered. Participate.
Certainly, you can now jointly afford that $1,000,000 mansion, but do you want to clean it?
Perhaps a more modest home with travel would give you much greater pleasure.

A new relationship can be a cause for optimism and pleasure.

Be aware of your needs, and it will most likely remain a source of these things.

Monday, September 10, 2012

Protecting your bread and butter - Buy/Sell

If you own your own business, chances are it’s your livelihood. But what if something happened to you or your partner and you were unable to go on running your business?


Having a buy-sell agreement in place can be one of the best ways for small and medium business owners to protect their livelihood against death, disability or trauma.


A buy-sell agreement is a legally binding contract between business partners, which facilitates the sale of business ownership when certain ‘trigger events’ like death and disability occur.


While the purchase can be funded personally, it is also commonly done through insurance, which can provide ready capital and is often more cost-effective.


But what are the chances?


It can take years of hard work to build up a successful business, however all this can be quickly undone if you or your business partner die or suffer a serious illness or disability.


While it’s understandably not something you want to think about, unfortunately these events are more common than you might think.


For two business partners currently aged 45, there is a 55% chance of death, total and permanent disability or trauma occurring before age 65. While for three business partners that number rises to 70% - for four business partners that number is a whopping 80%1.


Sadly, the more partners you have, the more likelihood there is of a misfortune occurring to one of you. However, having a buy-sell agreement in place can protect the equity in your business.


Using insurance to fund the agreement


There are many advantages to using insurance to fund a buy-sell agreement.


First, it can help to protect your equity in the business if you suffer from accident, illness or death, as you (or your estate) aren’t forced to try and sell your share of the business in a difficult and stressful time.


“Stressed sale” could lead you to sell your share of the business for less than it’s worth, or worse still, not be able to sell it at all.


Equally, it also protects the other business partners from having to work with your estate or an unwanted replacement business partner, your executor, or from having to suddenly come up with funds to pay you out.


But how exactly does a buy-sell agreement through insurance work?


Basically, partners sign a legally binding agreement enabling the sale and purchase of business equity in the event of death, disability or trauma.


Each partner also takes out an insurance policy, with the agreement stipulating that if a trigger event occurs, the funds received from the insurance policy will be used to payout their share in the business.


This means you, or your estate, would receive the payment, while the remaining partners would receive your shares.


Are there any other options?


If you do not have a buy-sell agreement in place and something happens to you or your partner, the business may be forced to take one of the below options - consider the questions raised and how ideal these would be for YOUR business:


Buy-out the share holding: Do you have enough equity in your business to do this at short notice? How will you determine the value?


Partner’s estate maintains share holding: Are you comfortable with your partner’s estate as a business partner?


Sell the share holding: Would the partner’s estate receive a good price for their equity? Would the remaining partners get the right business partner?


Borrow funds to buy the share holding: Would lenders still lend money despite the loss of a key person? Would private equity be looking for a premium, making it more expensive?


In many cases, having a buy-sell agreement via insurance should be considered as a sensible way to protect the interests of all partners. However all businesses are unique so it’s important to seek help from qualified professionals in order to find the right solution for your business.


For more information call Hugh Kilpatrick* from RIadvice-RetireInvest on 03 9471 0080.


*Hugh Kilpatrick is an Authorised Representative of RI Advice Group Pty Limited (ABN 23 001 774 125), Australian Financial Services Licence 238429. This editorial does not consider your personal circumstances and is general advice only. You should not act on the information provided without first obtaining professional financial advice specific to your circumstances.


1 Australian Bureau of Statistics, 2005 Australian Life Table.