Asset protection is one of the most important things to do if you have a business. Luckily, there are multiple asset protection services to choose from – you don’t need to reinvent the wheel. There are simple, straightforward procedures you must follow and it’ll offer you the best protection against most possible issues.
Asset protection security is provided by employing simple, affordable and already validated strategies. You could even call these “simple habits that all business owners should have”. There are already books on the laws that will protect you in case anything goes wrong. You’ll just have to be protected. In this article, we’ve considered all the points and simmered down some of the key concepts.
Here’s what you need to do:
Choosing The Right Business Entity
Asset protection starts with choosing the business entity. This is an important step because there are multiple aspects to pay attention to. For instance, there are many tax-planning considerations if your business is active as a sole proprietorship, but this type of business entity will not offer maximum asset protection security. As a sole proprietorship, your personal assets are exposed in case a lawsuit occurs. Your best choices are either an S corporation or an LLC (limited liability corporation), especially during the development of the business or during the growth phase.
Keep It Corporate
Choosing the business entity is not enough, you will have to maintain the corporate veil at all times. You will have to use a different bank account for your business, use the company name on all documents, maintain corporate records, keep a record for every meeting and title the property in the name of the company if necessary. All these steps will help you protect your company’s assets if and when a lawsuit occurs. Also, keep in mind that this annual maintenance work must be done long term – you can’t stop or postpone it.
Use Proper Procedures And Contracts
One of the easiest ways for creditors or other organizations to attack your personal assets or your company is if you act fraudulently or negligently. Always avoid this type of activity by using proper contracts and procedures whenever you make deals with clients or business partners. For instance, you must have separate contracts for every client or project, have subcontractor agreements, lease agreements for rentals, equipment titles, and documents. Don’t rely on emails, text messages, or even worse, voice conversations for important deals. Never hire people to work under the table and try to maintain a trustworthy relationship with all your business partners. Try to work with asset protection security specialists, tax and legal advisors, accountants and attorneys if you are not sure.
Purchase Relevant Insurance For Your Business
Insurance is a critically important aspect of your business plan and should never be avoided. You should include this cost in your startup budget, there’s no other way around it. Insurance is great because it gives you peace of mind, and lets you take care of the incident, if and when it occurs. You won’t have to think about finding money to solve these issues, you will be able to focus solely on the incident and how to deal with it. Also, try to get the right insurance policy used as part of your asset protection plan. Talk with your insurance agency and choose the right insurance policy that is best for you. Keep in mind that a professional practice or a retail store requires very different policies.
Umbrella Insurance – Probably Your Best Option
Getting umbrella insurance is one of the best options you can have when it comes to your asset protection security plan. This insurance works as an umbrella for all your other insurance policies, and its costs are minimal. Typically, you will only spend about $300 to $500 for a $1 million to $2 million coverage. However, don’t think that you can do anything and the insurance has you covered. No insurance policy will ever cover criminal, negligent, fraudulent or reckless behavior.
Placing Assets In Your Spouse’s Name
This is another important step of asset protection services that you can use in order to protect your assets. This strategy is usually effective because the creditors of one spouse cannot go to the other spouse to recover the assets of the other. This strategy should be employed if one spouse has a much riskier professional activity or personal life. In a good asset protection plan, a spouse who has valuable assets may transfer the assets to the other spouse in order to protect them. This is done by the high-risk person who transfers the assets to the low-risk person. In this situation, a prenuptial or postnuptial agreement will also be beneficial.
For instance, in most states, the couple can enter into a special agreement that specifies that valuable assets will be the husband’s separate property, thereby shielding the property against his wife’s creditors. Of course, if both spouses sign the same agreement, both spouses can be jointly liable.
If you decide to use this strategy, pay attention to what may happen in case of divorce – you may not be able to divide the properties as you wish. Talk to an asset protection services attorney to learn more about this legal aspect.
Consider The Homestead Exemption
There are important exemptions you can use in your asset protection plan to get even more protection. One of the most common exemptions is the homestead exemption. This protection is offered to our personal residence and is available in most states. This exemption protects a certain amount of the value of a person’s home in case a bankruptcy trial occurs. Simply put, a small part of your home value will always be protected if you use this exemption.
Consider Using Tenancy By The Entirety
This provision is allowed in some states. You can title your personal residence as “tenancy by the entirety” – in this case, if your spouse is sued, the property cannot be divided following the lawsuit. This strategy is usually statutorily based, so the legal fees will be minimal.
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