You started a business to be successful, make money, and fulfill a dream. Part of that dream likely includes building wealth to enjoy and pass on to your posterity. However, did you know that everything you’ve worked so hard to build could be at risk? All it takes is for a client, patient, visitor, or some other associate to file a lawsuit. And as your business grows, so does your need for protection.
In a successful lawsuit of any kind, your entire business could be swept out from under you to pay off creditors. But that’s not even the worst part. Your home, savings, retirement, and other personal assets may also be subject to seizure. It seems unfair, but it’s a legal fact. In a frivolous or not-so-frivolous lawsuit, you could lose everything.
Where are You at Risk?
Generally speaking, your biggest risk lies in owning a business. Business owners of any kind are at higher risk of being sued for a number of reasons. You may have more specific high-risk areas (such as malpractice), but as your business grows, so does the likelihood of a suit. You could be sued over:
- Accidents on your property
- Employment disputes
- Financial trouble or loan default
- Copyrights or intellectual property
- Tax problems
- Medical malpractice (including dentists, chiropractors, and more)
In order to protect your hard-earned assets, there are several steps you can take. The most essential part of the process is to take those steps right now, before any suits are filed. Trying to protect your assets after a lawsuit is brought will likely result in accusations of fraud, which has its own set of challenges.
Insurance coverage is essential and can help cover your losses, especially if you have an umbrella policy to cover any gaps in your regular coverage. However, insurance alone is not enough. The sum awarded in any lawsuit could easily exceed your coverage. And when that happens, your business and personal assets could be taken.
There are certain ways to structure your business that can offer you some protection from lawsuits. If you are running your business as a sole proprietor or DBA, you should definitely consult an asset protection professional about changing your legal structure, as you are particularly vulnerable. However, even structures such as LLC, S-Corp, Limited Partnership or Cooperative can leave you with unnecessary risk.
Asset Protection Planning
There are many techniques that can protect your business and personal assets from lawsuits. “There isn’t just one ‘ideal’ way to protect your home, accounts, or anything else that holds monetary value,” says Larry Oxenham of the American Society for Asset Protection. “The ‘best’ route for asset protection varies state by state and you have to consider multiple aspects of your personal life and business. This is why it’s best to seek the guidance of a professional with experience in this realm of law and finance.” Some of the methods employed to protect your assets may include (but are certainly not limited to):
- Exemption Planning – The law allows you to make certain assets exempt from seizure. Local laws vary, so consult your attorney for details on the process.
- Qualified Retirement Plans – Different types of retirement plans offer different levels of protection. You can even set up an LLC or Corporation to manage your investments, offering further security. As a bonus, you may also reap some tax benefits.
- Offshore Asset Protection Trust – The laws in certain countries prevent creditors from taking any assets you’ve placed in a trust there, no matter the reason.
- Spousal Gifting – Married couples can establish a gifting trust, wherein they gift each other certain assets. These trusts guard against creditors and estate taxes, but you and your spouse maintain control.
- Family Limited Liability or Limited Partnership – Placing your assets into a family LLC or family limited partnership creates a separate entity you can protect from creditors.
These methods and more, when combined with proper insurance and business structuring, can protect your important assets from lawsuits. Don’t risk losing everything in a lawsuit. Consult an asset protection specialist now to establish and modify your asset protection planning. As your business grows, you’ll have even more to protect.