Asset Protection - What's the Big Deal?

Posted By Jay Kaufman || 21-Sep-2011

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 unexpected circumstances.

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 protect the 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.

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