How to Protect Assets
The issue of how to protect assets , in a variety of circumstances, is one which we deal with daily for our clients. Most have accumulated a valuable nest-egg, often consisting of equity in their home and perhaps some savings, other investments and sometimes a business or a professional practice.
The particular concerns about protecting assets, as expressed by our clients, are based on the belief that a successful business owner is an attractive and visible target for lawsuits from a variety of sources. Employees, competitors, business associates and government agencies all present possible sources of legal liability, Bank lines of credit, personal guarantees on loans and leases, and possible downturns in business represent more specific, identifiable dangers. Owners of investment real estate recognize that liability from injuries on the property or disputes with tenants, buyers and sellers create the potential for lawsuits and the risk of loss.
Protecting assets, in the context of an ongoing business or professional practice generally involves an analysis at several levels.
Protecting Assets of the Business
First, how do we make sure that the business operates with the least amount of liability exposure for both business and personal assets? That means, what entity will minimize liability and how should the operating entity be structured and capitalized? Depending on the sources and extent of risk, multiple entities may be effective in isolating particular liabilities from each other and insulating specific assets from those sources of risk. Sometimes the laws of different domestic or overseas jurisdictions widen the available opportunities for protecting assets of the business, including surplus cash, accounts receivable, and intellectual property.
Protecting Personal Assets from Lawsuits
Second, how do we protect assets from the personal liability that may be generated from the business or other causes. Sometimes, the choice of entity alone will not reduce personal exposure to business risks. Those with a professional practice, such as physicians, architects and lawyers, generally retain personal liability for malpractice regardless of the form of entity which they use. The choice of entity also may not minimize personal exposure if the entity is disregarded by the courts for failure to adhere to formalities, if it is considered the alter ego of the owner. Courts may also disregard the corporate or LLC veil if they consider it inequitable to do so or if it would produce an unfair result for the plaintiff in a case. These uncertain and subjective standards means that a high degree of risk to personal assets is often present regardless of the mere choice of business entity which is intended to limit personal liability,
The question of how to protect assets, including business and personal assets, must be evaluated in light of achieving proper business structuring as well as shielding personal wealth from individual liability. The topics in the Asset Protection Library detail the strategies and the key considerations employed in developing a plan to protect assets for our clients.