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Why You Should Educate Your Kids on Financial Independence

Back in the 1990s, Robert Kiyosaki wrote a book called Rich Dad Poor Dad, which explained the basic principles of financial independence learned from his best friend’s father. It sold roughly 26 million copies and stayed on the New York Times Best Sellers list.....

Asset Protection - 5 min read

We’ve all heard stories about business owners getting sued for crazy reasons.

Take Adam, for instance. Several years ago, a family hired Adam’s landscaping business to build some stone retaining walls and fences in their garden. The customer loved the results and paid the bill. Everything seemed fine.

A year later, Adam found himself facing a lawsuit from this formerly satisfied customer. After a wet winter, the customer’s home flooded due to damage to water pipes. The customer blamed Adam’s landscaping business, and Adam went to court. Fortunately, Adam had records that clearly showed that his company wasn’t responsible for the damage, and the judge dismissed the case.

But what if he hadn’t had records? Or what if his company had caused the damage? Adam immediately began making plans to protect his assets. He had learned how easily a lawsuit could take away everything he had built.

What can today’s business owners do to protect their assets and reduce their risk?

 

Plan Early

It’s too late to start your asset protection planning once a threat arises. That’s why it’s essential to start early. Today wouldn’t be a bad day to start. If you try to make arrangements to protect your assets after a claim arises, your efforts could be undone by “fraudulent transfer” laws.

 

Think Beyond Insurance

Most businesses have liability insurance policies to protect them from lawsuits, and this is a good thing. But it’s not enough.

Insurance supplements asset protection planning; it can help you survive a fraudulent transfer claim. Your insurance company will pay to settle or fight the lawsuit. That’s why you pay premiums. Still, your assets are not guaranteed to be left unscathed. That’s why you need an iron-clad protection plan.

 

Keep Personal Assets and Business Assets Separated

As you build your asset protection plan, keep this mantra in mind.

Business structures like companies, partnerships and trading trusts are designed for commercial operations. They’re not intended to be personal piggy banks. If you place personal assets inside your business entity, you’re essentially making them susceptible to your company’s creditors.

The safest place for your personal assets is a personal trust because we have a long legal history of trusts shielding individuals’ property.

 

Separate Business Assets from Trading Operations

Another strategy is to protect your income earning assets by holding them  in a separate entity. For example, Adam the landscaper could hold his earthmoving equipment in a separate entity from his landscaping business. Therefore, if the landscaping business was sued or ran into financial difficulty, his plant and equipment should be protected.

 

Directorships

We often see both Mum and Dad being directors of a company. Although this may be perceived as being fair it also doubles the risk of losing all personal  assets if the directors became personally liable for trading activities.

 

Keep It Simple

If you can’t explain your asset protection plan in a couple of sentences, it’s too complicated and probably won’t work. Not only will you have a firm handle on your plan, but you’ll be able to explain it to a judge, if necessary. Additionally, with a simple plan in place, you can check up on it regularly. Updates are a crucial part of a solid asset protection plan.

 

Keep It Transparent

Although it’s tempting to think of your asset protection plan as a state secret, it’s best to plan on transparency. You might want to keep everything hidden so people won’t see deep pockets and think of you as a target. As with everything financial, however, you’ll want to keep everything above board and transparent. If you do face a lawsuit, the case will be clean and straightforward.

To discuss your asset protection planning with an expert adviser, get in touch with us at Altus. Before you have to face a situation like Adam did with his landscaping business, set your assets in order and protect them well.

 

 

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