Anthony Ranken & Associates June 15, 2020

Asset protection is often misunderstood and incorrectly applied. It is or at least should be about protecting your money from attacks from a wide range of entities who might try to come at you via the legal system. Asset protection should be proactive in nature; it is meant to be used and implemented before something happens, not after. If you wait until after you are faced with a lawsuit to implement asset protection, you are missing the purpose of it.

Unfortunately for a lot of people, both in their personal and business lives, the topic of asset protection is often not taken as seriously as it should and is only ever thought of after the fact, when an unfavorable situation has surfaced.

Asset protection is not a trick or scheme to hide your assets from the government. It is also not some sort of tax evasion or fraud scheme. If you are looking at an asset protection plan as a way to reduce your taxes, you are looking at it the wrong way and should refocus your tactic before you implement the plan. The core of asset protection revolves around things like registering your business under a legal business entity like an LLC or corporation, establishing a Trust Fund, purchasing business insurance and more; none of which hide your money from the government. And for anyone who undertakes any asset protection with the objective of hiding your money from the government, you would be committing tax evasion which is a federal crime.

Asset protection, on the other hand, is legal. It is useful and its value can become incredibly immense because asset protection plans can be used, and are oftentimes, needed by everyone. The idea that asset protection exists only for businesses is a narrow view. Asset protection plans can protect your money in the event of a divorce, they can ensure your inheritance passes properly to your children, and they can also defend against lawsuits and creditors. Their usefulness is wide-ranging and applicable to many situations. A strong asset protection plan simply fits in as a component of a strong estate plan, complete with Wills, Power of Attorney, Healthcare Proxies, Financial Plans, and Life Insurance.

Asset protection plans do not come with any sort of benchmark minimum financial status in their implementation. Your business does not have to be earning a certain level of income, you do not have to have a certain net worth for an asset protection plan to be useful or worthwhile. Financial status is unimportant when considering asset protection, therefore, it should be built into your budgeting process as an individual, business or a family unit.

As for a small business that is in its beginning stages, an asset protection plan should be among one of the first things that the business owners deal with or agree on, as it is useless when used retroactively. If you implement your asset protection plans at the same time as you build your business, you eliminate the need to worry; any lawsuit or creditor will be already defended against.

But if you wait for a lawsuit to come, or if you wait for a creditor to come after you, you can stand to lose everything. Not just your business, but some of your personal assets, including your home, in certain situations. Yes, that’s where it starts to become a little more necessary. You see, part of asset protection involves creating a financial veil between your business and your personal life. Part of this veil is your business entity (LLC, Limited Partner, etc). Without this veil, you the individual are seen as one and the same as the company. If your company is sued for ten million dollars and you lose, they are seeking a ten million dollar payout from you personally, not your company.

Even if you win the suit, a lawsuit consumes your time and requires the services of a business lawyer; the cost of defending yourself in court can add up very quickly, which is where asset protection comes in. There are types of insurance you can purchase that exist to protect you and your small business in the event of a situation like this. Some types of business insurance can protect against a variety of situations that can result in a trip to court.

The whole idea here is planning for the worst so that if it does happen, you are protected against it. The methods and amount of tactics you use will depend on your financial situation, the depth and sophistication of the advice you receive and the specifics of your situation. But it is also important to note that asset protection does not provide a guarantee, and it is not a clear cut tactic that will always work. Asset protection is a combination of roadblocks that should serve to protect you in most situations, however, there are instances where these strategies will not work.

Certain larger-scale lawsuits that involve some of the best business attorneys, can find ways to overcome these roadblocks. This does not negate the necessity of asset protection, as, in most cases, it will at the very least lessen the amount of damage you stand to suffer.

Asset protection is also heavily regulated by state law. Each state has its own laws and additional protections regarding asset protection, and it is important to research your state’s laws before you seek to implement an asset protection plan. For example, New Jersey does not have Homestead Exemption, and also has certain limitations regarding annuity and life insurance payouts. Meanwhile, Idaho has a Homestead Exemption and lacks any annuity or life insurance payout limitations. State rules guide the levels and types of asset protection you can have, as well as how well those tactics will stand up in court.

If you pursue the implementation of a plan the right way, with the right advice, guidance and expertice these nuances will most likely be accounted for. But it never hurts to do some of your own research anyway.

Asset protection, if properly implemented, can become highly valuable, just as a lack of asset protection can become the very bane of your company.