For Clients, Community, Professional Advisors.
Recently, business and estate planning attorneys have increasingly focused
on assisting their clients in protecting their assets from loss due to
The typical business owner will respond, “But, my business is structured
as a corporation/limited liability company (LLC). It’s already protected”.
This is only partly true.
The business has
inside protection. That is, the assets
inside the corporation have asset protection. In other words, if there is an
accident in the business, the owner’s
personal assets cannot be taken away. That’s the key advantage of using a corporation
or a limited liability company. However, there is a separation between
the business assets and the owner’s personal assets. It’s
a form of asset protection.
In a world of creditors, predators, unforseeable circumstances and divorces,
it’s important to take active steps to protect our assets. In the
above situation, the assets inside the business may have some protection, but the
ownership interest (the shares or membership interests themselves),- the “
outside interest” – is not protected in any way.
If the owner of the business is in a major car accident and has a large
judgment against him or her, he or she could lose his or her interest
in the business in a moment’s time. Having a corporation does not
outside ownership interest in the business from potential judgment creditors and
other predators. Many very smart and sometimes very wealthy business owners
fail to understand this fact.
A recent study in New York demonstrated that there were a surprising number
of judgments in the prior five year over $5 million dollars. The study
found that there was no correlation between the amount of insurance carried
and the amount of the judgment. Under many court rules, once there is
a judgment against you, the court can issue supplementary process to find
out all of your assets– no matter where they might be. This is called
a Citation to Discover Assets. Hence, advance planning is important.
Many states have passed new laws designed to protect the
outside interest of shareholders and particularly members of limited liability companies.
As we review our clients’ estate plans and prepare for our business
clients’ annual meetings, it is our obligation to bring these new
techniques to our clients’ attention. We have already seen situations
in our practice where using simple asset protection techniques has saved
our clients and their families significant dollars.
Look for further articles in my blog and for additional information on
our website concerning asset protection tools and techniques.