Most advisors know that Segregated Funds can grant Creditor Protection for their clients; however, there is a lot of questions how this works.
To answer the first question we get, Seg Funds are not divorce proof.
The ex-spouse is unfortunately not a creditor-- despite what your client may think of them during the divorce proceedings.
Creditor Protection is not guaranteed and is always potential. The courts determine if it will apply, not us at the carrier level.
For it to potentially apply, the courts usually want to see four things:
- The client needs to be the owner
- Nominee accounts are a grey area in the law
- If creditor protection is a concern of the client, we would encourage the use of client name in those situations
- There must be a bloodline beneficiary on the contract
- Naming a friend, neighbour, charity, etc. only on the contract will not grant creditor protection
- The deposit must be made with clean hands
- Any knowledge of creditor action at time of deposit may negate the potential protection
- The contract and any subsequent deposits should be in place for a minimum of 12 months before the creditor action
If you have clients concerned about protecting their assets in the event of creditor action, we also encourage engaging with a lawyer as well.
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