4 Asset Protection Strategies

Asset protection strategies are legal techniques used to prevent the loss of property to creditors due to legal judgments. A creditor is any opponent in a lawsuit. Therefore, creditors could include a business partner, a spouse, a large business or financial institution or a bankruptcy trustee. It is possible to organize and structure assets to reduce the possibility of future liability. Asset protection planners use a variety of strategies to protect property from legal problems. Here are some of the key strategies.

1. Privacy

Often a simple check of public records can reveal how much a person owns. Real estate mortgages and property values are listed in public records. Bank and investment accounts can also be uncovered easily. When a creditor is considering filing a suit or claim, this is valuable information. The decision to pursue legal action is often based on a determination of the value of assets available to satisfy claims. Individuals with “deep pockets” are considered better prospects for legal action. Law firms routinely investigate public records to identify assets before initiating a lawsuit. They know in advance whether their time and expense can be justified.

Ensuring privacy is an effective protection strategy used to deter potential legal opponents. If an investigation cannot locate assets in your name, you are less likely to be sued. Privacy can be achieved by placing assets in separate legal structures not readily linked to your name. Asset protection planners can also use legal structures that are not a part of public records. For example, trusts are not listed publicly. Similarly, an offshore bank account is more difficult to locate. If it is located, a legal claim may not be possible. Each of these strategies can deter a legal opponent.

2. Insurance

Automobiles and other vehicles can pose a huge liability. A major auto accident can result in millions of dollars of liability. These occurrences are addressed by your overall protection plan. However, most experts recommend that you obtain the maximum insurance coverage you can get. Insurance is relatively inexpensive and simple. It also provides another layer of asset protection in addition to other strategies. Therefore, purchase the highest limit your insurer offers that you can afford. Purchasing an umbrella policy is also a good idea.

3. Proper Legal Structure for Business and Investment Activity

The wrong legal structure for business and investment activity is another source of potential liability. Most experts agree you should obtain sound legal advice in order to determine the proper legal structure for all of your business and investment activities. This applies especially to rental properties and other entrepreneurial ventures. The proper legal structure can shield your personal assets from claims. Using appropriate legal structures for your business is another key protection strategy.

4. Avoid Liability in Partnerships

General partnerships pose unique risks. General partners have partial ownership interest based on the partnership agreement. However, each general partner has 100 percent liability for the entire entity. Your liability as a general partner far exceeds your investment in the business. Therefore, disputes with your business partners could wipe out all of your assets. If the partnership fails, each general partner is responsible for all of the creditor claims. Avoiding general partnerships is another key asset protection strategy.

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