Here are the eight most important strategies recommended by Business Fairfield to consider as part of your personal asset protection strategy to safeguard all your assets, be it tangible or intangible.
Select the appropriate business entity.
There will undoubtedly be several tax implications, but operating as a sole proprietorship is not the best option for asset preservation. Your personal assets are totally vulnerable to a prospective lawsuit as a sole proprietorship. Establishing an entity, such as an S corporation or limited liability company (LLC), is a critical step in the development of your business and the protection of your assets.
Keep your corporate veil in place.
If you’ve formed an entity, don’t imagine that simply keeping the entity’s articles of incorporation in your drawer will shield you in the event of a lawsuit. You must keep a separate bank account and checkbook for your firm; use the company name on all paperwork; title property in the company’s name if necessary; and, most importantly, keep corporate records and log the minutes at your annual meeting. Furthermore, LLCs are not immune from this type of annual maintenance.
Make use of appropriate contracts and procedures.
If you act recklessly or illegally, creditors might easily break the business veil and seize your personal assets. This may be prevented by using good lease agreements for your rentals, putting property and equipment titles in the company name, establishing subcontractor agreements and contracts on every project, not depending on emails for essential relationship terms, and never hiring people to work under the table. Only use individuals that are licensed, bonded, and/or insured to assist you with your business. Asset protection professionals, legal and tax consultants, contractors, and repairmen are among those who fall into this category.
Obtain proper commercial insurance.
Insurance is an essential component of any business and should be included in your initial budget. Insurance allows you to deal with an occurrence in your business while also providing plaintiffs with another target. Furthermore, be certain that you obtain the proper insurance policy. Owning a rental property as opposed to a professional practice or retail store necessitates completely different types of insurance.
Purchase umbrella insurance.
This sort of insurance can be personal or commercial, and it acts as a “umbrella” policy over any other insurance you may have. For $1 million to $2 million in coverage, the average annual cost is $300 to $500. That being said, don’t assume that throwing caution to the wind will always protect you. Umbrella insurance often does not cover fraudulent, criminal, reckless, or negligent behaviour.
Put certain assets in the name of your spouse.
If one spouse has a riskier employment or lifestyle, it might be quite advantageous to place assets in the name of the other spouse. In most cases, creditors of one spouse cannot access the distinct assets of the other. As a result, asset protection in the context of marriage necessitates a strategy in which valuable assets are held as the spouse’s distinct property with the least risk. A prenuptial or postnuptial marital property arrangement assisted by a family law attorney in Dayton Ohio, can help in this situation.
In most states, for example, if the husband is a company owner who incurs obligations, the couple might agree that some valued assets will be the wife’s separate property, sheltering those assets from the husband’s creditors. Clearly, if both couples agree to be co-debtors on a loan, such as when both spouses sign the family home mortgage, then both spouses are jointly accountable.
A word of caution: When doing marital or estate planning, you should carefully evaluate the ramifications of deeding property into the name of one or the other spouse. By safeguarding your assets from a creditor in this manner, you may jeopardize the distribution of your assets if you divorce.
Think about the homestead exemption.
The protection granted to our particular residential dwelling, generally referred to as the homestead exemption, is one of the most powerful exemptions available. This is a statutory exemption provided in most jurisdictions that protects a portion of a person’s home’s worth from a creditor or bankruptcy.
Look into full-time tenancy.
If your state allows it, you can title your personal dwelling as “tenancy by the entirety,” which implies that if one spouse is sued, the property cannot be attached or divided as a result of the action. The benefit of this technique is that it is also legally based, which means you won’t have to pay a lot of money to establish or maintain the designation. Just make sure your property is correctly titled, and you can safeguard your home in this manner if your state allows it.
