The term net worth refers to the amount of assets a person has, over and above their liabilities. This might include a car or home, but only if they have been completely paid in full. If you own a fancy car or big house, your net worth is only increased by the value of that item that is not subject to a loan. So while the equity in your car or house might be included in your total net worth figure, the entire value of your property is not part of the net worth equation. This is because if you still owe money for something, you would first have to pay off the loan before being able to liquidate the collateral. Said another way, the amount you owe for something decreases your total net worth, by the amount you owe. This concept becomes important when you are applying for loans, because lenders will want to see that you have sufficient assets to sell or finance if you need to get your hands on some cash fast, to pay off their loan. If your assets are all encumbered, they are not valuable to a potential new lender.
For most of us trying to show a large net worth rarely comes into play. But if you are a celebrity, your net worth is probably higher and protecting what you have is critical to maintaining a certain lifestyle. Many superstars own more than one home, and several luxury vehicles. But for those stars that have fallen on hard financial times, and perhaps even filed for bankruptcy you may wonder if they still have a large net worth due to all of the property they own. It is possible, but more than likely that is not the case and here is why:
• Not many celebrities buy large ticket items outright, so there are loans on what they own.
• The motive behind financing property even if you have the money to pay for it in full, as most stars do at the time of purchase, it is not a good idea to lay out all of your cash and keep nothing in reserve.
• A common way to title property is to put it in the name of a company rather than an individual. Stars know this tip very well and often times form companies for the purpose of protecting their assets.
You don’t have to be a mega star to engage in smart financial planning, but you do need to enlist the help of a qualified debt management professional. To learn more about the ways you can protect your net worth, and also your assets, call our office today.
For more information about bankruptcy, contact us at www.DsouzaLegalGroup.com.