Developing a solid asset protection plan can help you avoid business-crushing disaster. Lawsuits, accidents, or other unforeseen situations often result in catastrophic losses that can leave any business, big or small, reeling from the consequences. It’s important to remember that even if your business is a "one man show," your assets are not safe until you take the proper actions to protect them from a legal acquisition.
Here are some tips to help you devise a successful asset protection plan.
The time to begin the process of asset protection is not when you receive the notice of a possible claim or lien. You must understand that when you receive a letter of demand, the process has already legally begun; therefore, your efforts to protect your assets during this time will be futile. Legal battles are a part of business, and it is not a question of if they will arise, it’s a question of when. Once you legally form your business it is time to begin asset protection planning.
Don’t Count on Liability Insurance
Read the fine print on your umbrella liability insurance policy. In most cases, your most valuable assets are NOT protected under your general liability policy. This is due to the fact that general liability insurance is only meant to be the foundation of your business insurance policy. Supplemental asset insurance must be purchased and added to your policy in order to provide you with complete protection.
Divide Personal & Business Assets
Personal assets and business assets should be completely separate from each other. This is, most importantly, to protect you, your home, and your personal savings. In addition, if your personal assets are tied up in your business assets this makes it much easier for creditors or legal pursuant to pierce the veil. The best way to handle this situation is to place your personal assets in a trust. The law protecting trusts is especially solid thus making it nearly impossible for individuals or creditors to seize trust assets when the business entity is legally perused.
Don’t Hide Your Eggs
Hiding your assets can be a very bad idea. When you are prompted to disclose assets in tax forms and other legally binding documents it is imperative you make these "hidden" assets known. If creditors or a legal pursuant locates any assets which have not been legally disclosed, they will become fair game; not only to creditors or individuals, but also to government agencies.
Keep it Simple
If you can’t explain or decipher your asset protection plan, it could cause you serious issues in court. During a debtor examination or legal dispute, you will be asked how the assets are transferred and held. If your transfer record is too complicated, this could lead to suspicion. This could cause the court could find you have committed fraud or are at fault based on your possibly shady dealings.
Running a business can be extremely stressful especially for fledgling entrepreneurs. Why stoke the fire by not protecting your most vitals? Careful planning will help you protect both your personal and business your assets and can significantly reduce the possibility of legal hang ups down the road.