Everyone with assets will know that keeping such assets safe is a top priority as there are various threats to one's ownership of such assets like divorce, lawsuits and creditors.
With the law system of society today, various people can try to take what you have worked for all your life. The silver lining is that you do not have to leave yourself utterly defenceless as there are laws that can protect you and what you have.
What is asset protection?
All financial arrangements and structures made to protect your asset from creditors, lawsuits and others are called asset protection. The actions one can take for asset protection differ, like legal steps and financial plans.
Plan Your Asset Protection before any court case
With any lawsuit available, you cannot protect your assets again and what you can do is minimal as well. This makes it essential to protect your investment before you have a claim or liability. If you have strong asset protection set up, it can discourage lawsuits since your assets are protected.
Separate Your Personal and Business Asset
You need a clear distinction between your business and personal assets to avoid trouble. For businesses operated as a partnership or sole proprietorship, they are unregistered entities, meaning that your private properties are not distinguished from your business assets. This is also the case if you use the same bank account.
Sole Proprietor Might be Risky
There could be unplanned circumstances in which an angry customer will sue a sole proprietor. In such cases, all your assets like your house; and your financial assets are at risk. If there is a judgment against you, such an asset can be taken.
Protect Your Asset Using a Registered Corporate Entity
You will need a registered corporate entity to protect your assets. However, assets and properties kept in your name are pretty risky as it means keeping the risk and liabilities. You can succeed in business by protecting your assets and limiting your liability. Here are separate legal entities that you can consider:
Limited Partnerships
C corporations
S corporations
Limited liability companies
Observe all Annual Legal Requirement to Keep Legal Protection Valid
The registration of your company must be up-to-date, and you need to have general meetings annually, separate business clients from yours and do not sign business-related documents in your name. This is called maintaining the corporate veil, which keeps your asset separate from your business.
In the same way, you need to have a sound insurance policy, which can help maintain your property, rather than having it tossed about in a lawsuit. Here are things you need to look for in the insurance
Such liability insurance needs to take care of injuries to third parties on your properties.
It should take care of trespassing in case there is vacant or undeveloped land.
There should be Worker's Compensation Insurance if you have employees working on your properties.
Also, there should be an "increased cost of construction" in the insurance to take care of extra cost should the building be damaged or need reconstruction.
For landlords, "Loss of rents" riders will come in handy in recovering costs should your building be damaged or uninhabitable. With this, you can pay for relocation costs or get income from such property during the reconstruction process to offset the proper losses.
It is general knowledge that insurance companies have economic incentives to avoid covering all claims as they look for reasons to avoid coverage. So, insurance will be your first line of defence and use entities as the second one to keep your assets protected.
Essential Things to do to Cover Assets
Have all annual filing
Ensure you possess a resident agent in the state where you formed the company and all states where you are doing business.
Have a written record of all decisions
Have a corporate notice available for everyone
Make sure the corporation has enough capital
Make your bank accounts and tax filings separate.
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Daniel P Vigilante CPA and Profit Consultants