Asset protection is the key to making sure you don’t lose everything in a lawsuit. This guide offers valuable information and advice to help you better understand asset protection strategies, and how to keep your assets out of the hands of judgment collectors.
Frequently Asked Questions About Asset Protection
- What is asset protection?
- What are good guidelines for setting up asset protection?
- What do I need to protect my assets through my LLC or corporation?
- Can I set up asset protection after I get sued?
- What’s so bad about discount asset protection?
Asset Protection Defined
Asset protection is a strategy used to combat a sue-happy society. It’s based on the principle that assets in your name can be seized by a judgement creditor, and assets not held in your name are better protected. In other words, if you lose a lawsuit, assets held by a limited liability company or corporation don’t belong to you personally so they can’t be taken from you. But you must meet the legal requirements, best practices and filing requirements to have those protections in place. There are some states (such as California) with weak protection laws, that require additional steps to have complete protection. That’s why it’s so important to know the requirements necessary for the state in which you wish to incorporate. If you need help navigating your state’s protection laws, request a free 15-minute consultation with one of our incorporation specialists. We’ll help get you on the path to complete asset protection.
What Do I Need to Do to Protect My Assets?
Below are a few guidelines for setting up your own asset protection strategies. Click on the questions below for more details.
- Plan your asset protection strategy before you get sued
- Keep your personal and business assets separate
- Remember that it’s risky to be a sole proprietor
- Use a registered corporate entity for asset protection
- Meet annual requirements so that legal protections remain intact
- Protect your business assets in a business entity
- Ensure you have a comprehensive commercial insurance policy
- Avoid discount asset protection and incorporation scams
1. Plan Your Asset Protection Strategy Before You Get Sued
Once a lawsuit has arrived, it’s too late to put protections in place and there is little you can do. Take action before a claim or liability arises. In fact, a strong asset protection structure can discourage lawsuits because the better protected your assets are, the stronger a deterrent it is.
2. Keep Your Personal and Business Assets Separate
If you don’t insulate your own assets from those of your business, you could be in trouble. If you operate your business in the form of a sole proprietorship or as a general partnership, these businesses are not registered entities, which means that your personal assets are not insulated from those of your business. Not having separate bank accounts is also problematic. If you’d like more information on this, talk to an Incorporation Specialist.
3. Remember That It’s Risky to Be a Sole Proprietor
If you’re a sole proprietor and an angry customer sues you, any assets you own such as your house or car are not protected. Nor are financial assets such as your bank account. These can all be taken should a judgment be found against you. A two-man partnership is twice as risky as now you take on the liability for your partner’s mistakes. Overall, it’s risky to be a sole proprietor.
4. Use a Registered Corporate Entity for Asset Protection
To protect yourself, use a registered corporate entity. Most people don’t realize there’s a risk in keeping assets and property in your name, which also means keeping the liability and the risk. To succeed in business, to protect your assets and to limit your liability, you want to select from one of the good entities or structures that are truly separate legal beings. They are:
Begin your asset protection strategy by incorporating.
5. Meet Annual Requirements So That Legal Protections Remain Intact
You’ll need to keep your company’s registration up-to-date, hold annual meetings and keep annual minutes, keep business clients separate from your own, and avoid signing any business-related documentation in your name. This is known as maintaining the corporate veil and we provide this service to many of our clients. This keeps your own assets separate from those of your business. By the same token, you are also protected from any debts or disasters incurred by your business.
6. Protect Your Business Assets in a Business Entity
You need to protect your business and real estate assets from yourself. A limited liability company is an excellent way to help protect key assets. (Learn how to become incorporated now.)
Once you decide to incorporate, you can get the most out of your business entity and get our Using Your Own Corporation guide filled with 135 legal forms and contracts you’ll use before, during and after you set up your business entity.
7. Ensure You Have a Comprehensive Commercial Insurance Policy
A comprehensive commercial insurance policy can help you keep the property instead of having it end up as a part of a court-ordered settlement. What should you look for?
- The liability insurance should cover injuries to third parties on your property.
- It should cover trespassing, especially if you have undeveloped or vacant land.
- If you have people working on your property as your employees, you should also have Worker’s Compensation insurance.
- The insurance should also have “increased cost of construction” additions if your building should become damaged or require reconstruction. That means you’ll be covered at today’s construction prices instead of those of previous years.
- If you are a landlord, “loss of rents” riders can help you recover costs in the event your building is damaged and uninhabitable so that you can pay relocation costs or receive income from the property while it’s being rebuilt to offset right losses.
- A final consideration is a “higher limits” rider, so that you have extra protection in the event a catastrophic claim is filed in one of these categories.
But as we know, insurance companies have an economic incentive not to cover every claim. They find reasons to deny coverage. So while you will have insurance, you will use entities as a second line of defense to protect your personal assets from your business claims.
8. Avoid Discount Asset Protection and Incorporation Scams
You need to know that there are a number of corporate information scams in the marketplace.
A popular one is the $99 incorporation. For just $99, they claim you will be bulletproofed and asset-protected. We have tested such services to see how they could possibly do all the work necessary to completely and properly form and document a corporation or LLC for just $99. These providers fall into two camps.
Take the Money and Runners
The first camp does the minimal work needed to form an entity. They file the articles. That’s it. Once you pay the $99 they will no longer take your phone calls or questions. Eventually you will be sent a document with a state seal on it indicating that you are incorporated, but you will not be sent the minutes, the bylaws, operating agreements, or any issued stock, all of the other components necessary to be a complete corporation.
The Bait and Switchers
The second camp uses the $99 as a come-on. They offer an a la carte menu in which the $99 is just for the filing of the articles. The bylaws or operating agreements are another $350. The meeting minutes are $250, and so on. By the time you are done they have gained your confidence and that $99 has ballooned up to $2,000 to $3,000 for just one entity.
By contrast, our firm charges much less than that. Corporate Direct charges $695 (plus state filing fees) for the complete package, which includes telephone support and the first year of registered agent services. Yes, it costs more than $99, but you can be sure you are receiving the protection you need, and that you won’t be cheated out of your money. Call us today (1-800-600-1760) to get started.
How do I make sure my LLC or Corporation is Protecting my Assets
Just having the letters LLC after the name of your business doesn’t automatically protect your assets from creditors. There are a number of corporate formalities that you must abide by in order to maintain your protections.
The six things you must do to cover your assets:
- Perform all annual filing.
- Have a resident agent in your state of formation and any state your company qualifies to do business in.
- Maintain a written record of all decisions.
- Provide the world with corporate notice.
- Ensure the corporation is sufficiently capitalized.
- Maintain separate bank accounts and tax filings.
If you would like to make sure your LLC or corporation is meeting all of these requirements you need for asset protection contact Corporate Direct for our Corporate Cleanup services.
Can I Set Up Asset Protection After I Get Sued?
Short Answer: no, you will not be able to set up asset protection after you get sued.
Asset protection is a privilege, and not a right. Before you can protect your assets behind an LLC or corporation you must fulfill the corporate formalities listed above. If you get sued on Tuesday and set up an LLC Wednesday, you have not been fulfilling the corporate formalities and are not protected in the eyes of the court.
A Story About Preemptive Asset Protection
A few years ago, a woman approached Corporate Direct to ask how much it would cost for our incorporation services so she could protect her assets. Now, she was the owner of a few condominiums and had been renting them out and acting as a landlord for her various properties. She felt the incorporation price was too high and decided that she did not need to worry about setting up an LLC as a buffer between her and her tenants.
A few months later she called my office to tell me she had been sued by a tenant who slipped on a patch of ice, and asked if there was anything we could do for her. Unfortunately there was not.
Because she did not have the asset protection benefits of an LLC or corporation, all of her assets were fair game for the plaintiff and his attorney, including her properties, home and whatever was in her bank account.
The worst part is, this is a common story. In fact, 50% of business owners across the country are being held personally responsible when their businesses get sued because they either aren’t incorporated or are not in compliance with corporate formalities.
That is why it is so important to put protections in place before you make your millions.
If you have any questions about asset protection or would like some more guidance on setting up a corporate entity for asset protection, please call Corporate Direct at 1-800-600-1760 and we would be happy to help. We also have live agents ready to talk with you during business hours.