You are about to be sued
Law suits have become increasingly common in Singapore. This could be because people are more aware of their legal rights, and thus more concerned about enforcing their rights. Secondly, as businesses and finances are conducted or raised based on the law in Singapore, more and more differences are settled in the court or arbitration centre.
Sometimes, the financial consequences of losing a law suit could lead to personal bankruptcy. While it could be difficult to savage your personal situation, it would not be fair for your family members to go down with you. With sound and strategic planning, your family members can be spared from the negative effects of such a situation.
Recent instances of people being sued in Singapore:
- A doctor was sued for professional negligence, lost the court case and is being suspended from practice. His practice became insolvent because of business debt.
- A chairman of a board was sued for director negligence, and had to compensate S$4M.
- A business founder gave a personal guarantee to a bank for a working capital to buy-out the shares of his partner. The business subsequently failed, and he is being sued for bankruptcy.
- A partner of a law firm ran away with $5M worth of his clients’ money, leaving the other partner of the law firm liable to the clients. He could not pay, and was thus sued for bankruptcy.
Estate Planning Implications and Problems
- If you hold many of your assets jointly with your spouse, your financial problems could also affect your spouse.
- If you die following your bankruptcy, the official assignee will manage your estate for the benefit of the creditors.
- If you are a beneficiary of your spouse’s will, life policy or CPF savings, the money you received will need to be distributed to the creditors via the official assignee. (This will occur if, at the point of receiving the money, you are still an undischarged bankrupt.)
- If you are a beneficiary of your spouse’s estate through the Intestate Succession Act and you are still an undischarged bankrupt at the time you receive the money, this money will also need to be distributed to the creditors via the official assignee.
- You cannot transfer your assets to a third party when you know that you are going to be bankrupt. There is a 5 year claw back period.
Estate Planning Solutions
- Ring-fence part of your assets when times are good. It is too late to ring-fence assets if one gets into a law suit.
- If the assets are significant or are an inheritance from your family, you might want to set up a trust to hold and ring-fence the assets.
- Have a sincere talk with your spouse, elderly parents and loved ones. You might want to suggest not being a beneficiary of their will, life policy or CPF. This prevents the assets you inherit from them from flowing towards your creditors.
- Review the need to own ALL assets jointly with your spouse. A bit of segregation is probably a safer practice.