No matter how smart a business owner you may be, if you leave your assets hanging and find yourself in a lawsuit, trial lawyers on the other side may end up claiming most of them (if not all). In America the more assets you have, the more tempting a target you will be for frivolous lawsuits. Thankfully, protecting your assets from a lawsuit might actually be easier than you think. Below are 7 different strategies you can start applying in order to keep your assets protected in case of a lawsuit coming against your business.
Use Business Entities – If you’re an entrepreneur of any kind, it’s very important that you separate personal assets from those of your business. Neglecting to take specific legal steps in order to create a separate business entity could end up costing you everything you own.
Own Business Insurance – Some professions generate more exposure to liability than others. For example, financial advisers and OBGYN’s are both in fields that produce lots of different lawsuits for malpractice. Keep your insurance paid and up-to-date at all times and if you can, consider investing in extra or expanded covered for additional safety.
Use Retirement Accounts – Federal law actually provides unlimited asset protection to ERISA-qualified retirement plans. They also cover up to $1 million in assets in your IRA in the event of bankruptcy. While some states provide even more protection to IRAs, others have opted out of the Bankruptcy Reform Act and therefore may cover a lesser amount.
Homestead Exemptions – Many states provide lots of protection to home equity. That means if you need to declare bankruptcy, the law will prohibit courts from awarding home equity to creditors. Some states, such as Florida and Texas, even offer the protection of an unlimited amount of home equity. Be sure to check and understand these laws in your state.
Titling – Examine how your home is titled. If you own your home with your spouse, you each own an indivisible interest in the home. If only your name appears on the suit, creditors cannot force the other spouse to sell his or her own interest in the home. Since the interest is indivisible, this can help you protect home equity where state law doesn’t actually provide a sufficient homestead exemption.
Annuities & Life Insurance – Some states also provide a good amount of protection to annuity balances and to assets in cash value life insurance policies. For example, Florida provides unlimited protection to these types of assets, while other states (such as Oregon) provide protection for up to $500 per month in annuity income.
Don’t Wait To Protect Yourself – Don’t sit back and wait until a lawsuit is imminent before you make these moves. If you do, courts will likely rule that your transfer of funds into a protected class is a fraudulent conveyance and disallow the transfer which will leave those assets exposed.
Protecting your assets is a smart move for any business owner to make. These seven simple strategies can help assure that your personal assets are protected in the event your business faces a lawsuit. For additional information on these strategies it’s recommended you contact and speak with a lawyer in your specific state to learn how all of these strategies apply there.
Reach out to our team if you’d like a recommendation!
[fc id=’12’ align=’center’][/fc]