Assets are accumulated through years of hard work, but they can all be lost so quickly in a lawsuit or creditor claims. You need to be aware of all the laws that surround certain types of assets and the measures that you can take to lawsuit-proof assets to protect your earnings.
Why Protect Assets from Lawsuits?
Many circumstances can completely wipe out your well-earned money and they do not just apply to litigation-prone professions like doctors or corporate executives. If you get a divorce, file for bankruptcy, or are on the losing end of a civil lawsuit, you are also at risk of losing your savings. Most people do not expect these circumstances to hit them until it is too late. Such circumstances vary in nature and can be as simple as being involved in a motor vehicle accident or a personal dispute.
Asset Protection
There are legitimate strategies of asset protection available to help you create as many obstacles as possible for potential creditors. This will discourage them from pursuing any further than making a favorable settlement as they would not want to pursue a long and costly litigation.
LLCs
LLLCs are now being used more and more to protect assets. Of course, each state will vary on its protection and each asset is different. An LLC can provide protection with a strong charging order and the added benefit of some additional tax benefits.
Asset Protection Trusts
Through asset protection trusts, you can transfer a portion of your assets into a trust. This trust will be facilitated by an independent trustee, and it will be out of reach of most potential creditors. The trust will also enable you to continue receiving occasional distributions. You may also make use of this trust to set aside some assets for your children’s future.
Accounts Receivable Financing
For business owners, you can consider borrowing against your receivables and placing the money into a non-business account. This can make your debt-impeded assets look less attractive to your creditors while also making accessible assets unreachable.
Stripped-Out Equity
Another option to protect your assets is to pull the equity out and putting it into assets that are protected by the state.
Family Limited Partnerships
Assets that are transferred into a family limited partnership are exchanged for shares. The family limited partnership owns the assets, so they are safeguarded from creditors under the uniform partnership act. You will have control over the family limited partnership which means that the assets are accessible by you. The shares that you will receive will have no market, so their value is much lower than the value of the exchanged assets.
Other Ways of Asset Protection
- Transferring assets to your spouse but divorce may cause problems to arise.
- Deposit more money into a retirement plan that is sponsored by your employer as it often comes with unlimited protection.
- Consider an umbrella insurance policy that protects you from personal injury claims that extend beyond your home and auto policy coverage.
- Make the most out of your state laws with regards to annuities, homesteads, and life insurance.
- Do not mix business assets with personal assets.
