Fifth in the wealth management series

We live in a litigious society. If we haven't been sued, we certainly know someone in our business community who has been sued, often with disastrous results. This section deals with the basics of asset protection. It will cover the easy things to do that might help protect you if the worst happens.

Have a plan

The first step we always suggest to our business owners is that they first sit down and figure out what are the largest risks facing their business. We then suggest that they craft a disaster plan on what they would do if any of these items happens.

We often talk about being proactive versus reactive in running a business. Being proactive is where the plan is ready before the event happens. If you do this, there is a better than even chance that you will come out of the event whole. If you don't have a plan, then you are not only dealing with the problem, but you are also trying to figure out what to do on the fly. This is where mistakes happen.

We suggest that as you assemble this plan you include your accountant, your lawyer, your insurance agents and key managers of your company. All have different viewpoints and information you will need in assembling your plan.

Use corporate and asset protection structures

Over and over again, I'm amazed by how many owners of private businesses don't have at least one corporation for their business. In high risk businesses or high risk parts of the country you will want to have several corporations that protect various parts of your business.

If you are in a business where professional liability is not protected by a corporation, you should work with an asset protection specialist who will help you structure the ownership of your assets in a manner where it will be tougher for creditors to get you and your assets if the worst should happen.

We often suggest that contracts should be owned by one corporation and hard assets should be owned by another corporation. For example, if you are a construction company, the equipment you use is owned by one company. This company would lease the use of those assets to your operating company. This could protect the hard assets, or at least make it more difficult for creditors to attach those assets.

You must plan early

There is a term in the asset protection world - fraudulent conveyance. You don't want to be caught by this concept. Simply stated it means that if you transfer assets knowing that a law suit is going to happen, you will have those assets drawn back into any settlement.

For this reason, you must plan early if you expect to protect your assets from creditors. The name of the game in asset protection is often making it difficult and expensive for your creditors to prevail. You might end up paying some money, but that money will likely be less than if you had done no planning.

We suggest that you work on this issue before it becomes urgent and important. Once a lawsuit occurs, your options are fewer and the chances of real economic harm larger. We at Stage 2 are happy to help you with the coordination of this portion of your plan. Remember, wealth management means not only managing what you have, but keeping it as well.

With warm regards,

Stage 2 Planning Partners

Josh Patrick © 2007

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