Asset Protection in Melbourne : What Actually Works (and What Doesn’t)

Written on Jan 19, 2026. Posted in News.

In the dynamic economic landscape of Australia, successful professionals, business owners, and high-net-worth families rightly focus on growth, investment, and wealth creation. However, with success comes exposure to risk. Litigation, business downturns, regulatory challenges, and even relationship breakdowns can threaten the assets you have worked so hard to build.

Effective asset protection is not about secrecy or evasion; it is the strategic and legal structuring of your affairs to legitimately shield your wealth from future claims. It’s about building a fortress around your assets before the storm arrives, not trying to build a sandbag wall in the middle of a flood.

This article cuts through the myths and misconceptions to explain which asset protection strategies are robust under Australian law and which are likely to fail, leaving you exposed when you can least afford it.

Understanding the Landscape: Common Misconceptions & Ineffective Tactics

Many supposed asset protection strategies are based on outdated ideas or a fundamental misunderstanding of Australian law. Courts are equipped with powerful tools to disregard arrangements that are designed to defeat creditors. Here’s what doesn’t work.

Tactic 1: “Hiding” Assets or Simple Non-Disclosure

The simplest and most dangerous misconception is that you can protect assets by simply not disclosing them. In any legal proceeding, from a creditor’s claim in the Supreme Court of Victoria to a Family Court property settlement, you are required to make a full and frank disclosure of your financial position. Failing to do so can result in severe penalties, including fines, imprisonment for contempt of court, and adverse cost orders. Trustees in bankruptcy and liquidators have extensive powers to uncover concealed assets, both in Australia and overseas.

Tactic 2: Last-Minute Transfers to a Spouse or Family Member

When financial trouble looms, a common knee-jerk reaction is to transfer the family home or investment portfolio to a spouse or child for a nominal sum (e.g., “$1”). This is arguably the most common and flawed strategy we encounter. Australian law, specifically the Bankruptcy Act 1966 and the Corporations Act 2001, contains powerful “clawback” provisions (known as voidable transactions) that allow a Trustee in Bankruptcy or a liquidator to reverse these transfers. As we will explore below, these clawback periods can extend for many years.

Tactic 3: The “Sham” Arrangement

A “sham” is a legal arrangement that is intended to create a false impression, deceiving third parties about the true state of affairs. For example, creating a trust on paper but continuing to treat the assets as your own, with no regard for the formal duties of a trustee.

Courts will look beyond the documentation to the substance of the arrangement. If they find that the parties never intended to create the legal rights and obligations that the documents suggest, they can declare the entire structure a sham. The consequence? The assets are treated as if they were still in your name, making them fully available to creditors.

Tactic 4: Believing a Company Structure is a Silver Bullet

While the “corporate veil” does provide a degree of separation between personal and business assets, it is far from impenetrable. Company directors in Victoria and across Australia can be held personally liable for company debts in several situations:

Insolvent Trading: Knowingly incurring debts when the company is insolvent.
Personal Guarantees: This is the most common trap. Banks and suppliers frequently require personal guarantees from directors as a condition of providing finance or credit. This makes your personal assets, including the family home, directly accessible to cover business debts.
Breaches of Director’s Duties: Failing to act in the best interests of the company.
Tax: Personal liability for certain tax liabilities.

What Actually Works: Legitimate Asset Protection Strategies

Effective asset protection relies on planning, proper structuring, and using the right legal vehicles long before a claim arises.

Strategy 1: Strategic Ownership of Assets

The simplest legitimate strategy involves holding significant assets, particularly the family home, in the name of the spouse or partner who is at a lower risk of litigation. For example, a surgeon, engineer, or company director (high-risk professionals) might ensure the family home is owned by their partner who works in a lower-risk occupation.

Key Consideration: This strategy must be balanced against the implications of the Family Law Act 1975*. In the event of a relationship breakdown, the Family Court will consider all assets of the relationship, regardless of whose name they are in. This risk can be managed through a professionally drafted Binding Financial Agreement (BFA).

Strategy 2: The Power of Trusts

Trusts are the cornerstone of sophisticated asset protection in Australia. By separating the legal ownership (held by the trustee) from the beneficial ownership (held by the beneficiaries), a trust can effectively shield assets.

Discretionary Trusts (or “Family Trusts”): This is the most powerful vehicle. Assets are held by the trustee for the benefit of a wide class of potential beneficiaries (e.g., you, your spouse, children, and other relatives). Crucially, no single beneficiary has a fixed or guaranteed entitlement to the trust’s assets until the trustee exercises their discretion to make a distribution. Therefore, if a beneficiary is sued or declared bankrupt, their creditor cannot easily claim a right to the assets held in the trust. For maximum protection, the roles of Appointor (the person who can hire and fire the trustee) and Trustee should be structured carefully.

Testamentary Trusts: These are trusts established via a Will that come into effect upon your death. Rather than leaving an inheritance directly to a beneficiary, you leave it to a trust established for their benefit. This provides immense protection for the next generation, shielding their inheritance from claims arising from their own potential bankruptcy, litigation, or divorce.

Strategy 3: Maximising Superannuation

Superannuation enjoys special protection under the law. Under the Bankruptcy Act, assets held within a regulated super fund are generally protected from creditors in the event of bankruptcy. This makes superannuation one of the most secure environments for long-term wealth accumulation. Contributions can be made up to certain caps, and a Self-Managed Super Fund (SMSF) can offer control over how those funds are invested (e.g., in commercial property).

Important Caveat: The courts can claw back contributions made to a super fund with the specific intention of defeating creditors. This is another reason why proactive planning is vital, rather than making large, unusual contributions when facing financial difficulty.

Strategy 4: Binding Financial Agreements (BFAs)

Commonly known as “pre-nups,” BFAs are contracts between two people that formalise how their assets will be divided in the event of a relationship breakdown. They are a critical tool for protecting pre-existing wealth, inheritances, or assets in a second marriage. For a BFA to be legally binding, both parties must have received independent legal advice before signing. This provides certainty and avoids the costly and uncertain process of a Family Court dispute.

The Legal Gauntlet: Voidable Transactions and Clawback Timelines

Understanding the clawback rules is essential to appreciating why last-minute transfers fail. A Trustee in Bankruptcy can apply to the court to void transactions that fall into the following categories.

Type of Transaction	Clawback Period	Explanation
Transfers to Defeat Creditors	No time limit	If it can be proven that your main purpose in making the transfer was to prevent, hinder, or delay creditors from accessing the asset, the transfer can be voided regardless of how long ago it occurred.
Undervalued Transactions	5 years before bankruptcy	This covers selling an asset for significantly less than its market value (e.g., transferring a $1 million property for $1).
Transfers to a Related Entity	4 years before bankruptcy	A lower burden of proof is required if the transfer was to a relative or a related company and was for less than market value.

Practical Example: A Melbourne-based property developer is facing financial stress. He transfers his family home in Toorak, valued at $3 million, into his wife’s name for $1. Eighteen months later, his company collapses, and he is forced into personal bankruptcy due to personal guarantees he signed. The Trustee in Bankruptcy will almost certainly succeed in having the transfer of the home voided, making it available to his creditors. Had the home always been in his wife’s name and structured correctly from the outset, the outcome would likely have been different.

Conclusion: The Importance of Proactive Planning

Asset protection is a specialised and complex area of law. The strategies that work are those implemented well in advance of any perceived threat, are structured in accordance with Australian law, and are tailored to your specific personal and professional circumstances.

Relying on myths, informal arrangements, or last-minute manoeuvres is a recipe for disaster. The Victorian and Federal courts have broad powers to unwind transactions and disregard structures that are not legitimate.

The key to building a durable financial fortress is to seek expert legal advice early. By integrating asset protection strategies with your wealth management, business structuring, and estate planning, you can ensure the wealth you create today is secured for you and your family tomorrow.

Disclaimer: This article provides general information and is not a substitute for professional legal advice. Your circumstances are unique, and you should consult with a lawyer to discuss your specific needs.

To discuss a tailored asset protection strategy for your circumstances, contact the specialist wealth management and legal team at our Melbourne office today.