Asset protection refers to the process of utilizing legal techniques and taking advantage of existing laws to shield your assets from outside attack. It involves separating business and personal assets, so they do not become a liability to each other. (Proper asset protection planning does not consist of hiding your assets from creditors or engaging in tax evasion.)
Why is asset protection necessary?
In the modern era, litigation is very common. Millions of lawsuits are filed each year against businesses and individuals. For some, a lawsuit is seen as a relatively quick way to obtain a large amount of money. Those seen to have deep pockets (i.e., the wealthy and big businesses) are considered prime targets. Even though most lawsuits don't go to trial, the claim may still be settled for a large amount of money.
Often times, even small businesses and those with modest means are targeted for litigation. Because there is so much risk, especially in the business world, asset protection can help prevent disastrous consequences, such as having to close your business, or sell your personal assets, to satisfy a judgment.
Let's say you own a small business, and one day, a customer is injured on the premises. If he sues you and obtains a judgment, your business is liable. If your business does not have the funds to pay, it may have to liquidate business assets to come up with the money. Even worse, if the business still can't come up with the money, you could be held personally liable, which means your personal assets could be at risk to pay the damages award.
In this case, proper asset protection planning would separate your business assets from your personal assets, so that a judgment against your business would not be a risk to you personally (and vice versa).
Types of asset protection
The strategies employed for protecting your assets will be unique to the type of assets you have and your goals. These are some of the common methods for protecting your assets:
- Business entities: Rather than owning a business in your own name, forming a Limited Liability Company (LLC) or corporation limits your personal liability for business obligations, shielding your personal assets. A limited partnership (often called a family limited partnership) is a popular entity for asset protection as well.
- Trusts: 't provide asset protection (you still “own” the assets in the eyes of the law, and therefore the assets can be accessed by creditors), but it can still have a place in the overall structure of your asset protection plan.
- Homestead exemption: California law affords protection for a certain amount of equity in your home from creditors if your house must be sold to pay your debts.
- Insurance: Having an umbrella insurance policy large enough to cover your potential liabilities is an effective way to prevent a financial catastrophe, both for individuals and businesses. Your hard work can be wiped out by something as simple as a trip to the grocery store if you cause a car accident that results in death or serious bodily injury to someone.
If you've worked hard to accumulate wealth, you should take proactive steps to protect it from outside attack. Asset protection planning can help provide peace of mind for you and your family.
Helix Law Firm can help protect your assets
Most people can benefit from at least some level of asset protection. Of course, the more valuable your assets, the more important asset protection becomes.
If you're interested in learning more about how Helix can help you protect your assets, please call us at (619) 567-4447 to schedule a free consultation.