8 Tips On Protecting Your Assets

In the legal community, it’s an open secret how a person goes about protecting their assets. No innovation is needed, all a person needs to do is stick to certain principles and rules. There are clear laws that anyone can implement to protect their assets in the event of a lawsuit or claim. In this article, we will share these open secrets with you and give you 8 tips on protecting your assets. 

1. Choose the right business structure. When you start a business, you have to decide on the kind of business entity you will establish. This will determine the income tax return form that you will have to file. Typically, people choose from the following business entities:  the sole proprietorship, partnership, corporation, and S corporation. A Limited Liability Company (LLC) is permitted by state statute. For more information, visit the Small Business Administration’s Choose a business structure web page. Not only are there tax implications from choosing a specific business structure, but there are implications in terms of your personal liability. For instance, with a sole proprietorship, your personal assets are open to claims or lawsuits stemming from your business activities. 
2. Protect your corporate veil. The game doesn’t end when you have set up your business and have your articles of incorporation. You have to protect the corporate veil that shields your assets. That means shifting ownership of assets to your new business structure and creating financial accounts and documentary trails to show that your assets are well and truly business assets and not personal assets. So, you will need to open a separate bank account for your business, use the company’s name on all documents, title property in your company’s name if you need to, and maintain all company records and logs of annual meetings, in pristine condition. LLCs aren’t exempt from having to perform annual maintenance of their corporate veil. 
3. Use the correct contracts and procedures. Creditors and lawyers are always looking for ways to pierce the corporate veil. If you are negligent or conduct fraudulent activities, that is the perfect opening for them to pierce your corporate veil. So you want to ensure that your contracts are drafted according to the highest standards. Have lease agreements in your company’s name, transfer your assets to your company, have contracts for every economic activity you undertake, such as making developments on a property, and do not hire anyone for under-the-table work. Only use insured, licensed, and/or bonded professionals. 
4. Purchase business insurance. It is very important to get insurance. Insurance protects you against the risk of contingent or uncertain financial loss. It should never not be in your budget. Remember, you are protecting your corporate veil. SO, for instance, if your home is placed under the company, then you need the appropriate business insurance to protect your home. Not only should you get insurance for your assets under your business’ name, you should get the right insurance for each asset. For instance, a retail store will need  very different insurance to a rental property. 
5. Get umbrella insurance. Umbrella insurance can be used for both personal and corporate entities. It refers to liability insurance that is in excess of other specified insurance policies and also is potentially primary insurance in the event that losses are not covered by those other policies. It exists to protect you from large, potentially devastating liability claims or judgments. It is referred to as “umbrella insurance” because it is the ultimate coverage, protecting you when you have breached the limits of your other policies. Typically, umbrella insurance costs between $300 and $500 per year for between $1 million and $2 million of coverage. Even umbrellas leak: you should not assume that with umbrella insurance that you are covered against everything. Umbrella insurance is not protection against criminal, fraudulent, negligent or reckless activities. 
6. Transfer Some Assets To Your Spouse. If you are married and one of you lives a riskier lifestyle than the other, or has a more dangerous occupation, then transferring some assets to your “safer” spouse’s name is wise. Normally, creditors cannot lay claim to assets held by the other spouse. As a rule of thumb, valuable assets should be held in the name of the spouse with the lowest risk exposure. It would also be wise to have a prenuptial or postnuptial agreement in place to ensure that everyone is protected in the event of the dissolution of the marriage.  Here’s an example: in the majority of U.S. states, if a husband owns a business and incurs liabilities, it is perfectly legal for the couple to agree to some of their valuable assets being transferred to the wife, protecting them from creditors. Of course, if a couple jointly signs a loan agreement, then they are both on the hook for that loan. This strategy has downsides: there are clear implications to transferring property from one spouse to the other. Doing so would materially affect the division of assets in the event of a divorce.
7. Consider using the homestead exemption. The homestead exemption protects the value of resident’s homes from property tax, creditors and any circumstances arising from the death of the homeowner’s spouse. Homestead exemptions exist in the statutes or constitutions of many states in America. 
8. Title your property as “tenancy by the entirety”. A number of states permit you to title your personal home as “tenancy by the entirety”. Tenancy by the entirety is a form of shared ownership that is recognized in the majority of states and that is only available to married couples. Spouses who own property together and reside in it each own an undivided share of that property and both spouses have full rights of occupation and usage and right of survivorship. Furthermore, tenants by the entirety cannot transfer their interest in that property without the consent of their spouse. Essentially, what this means is that if one spouse is sued, the house is protected against bifurcation or attachment as a result of the lawsuit. This strategy is grounded in the law, so you don’t need fancy lawyers to implement it. You just have to ensure that your property is properly designated and hey presto, your property is protected. 

Get additional details here on how you can protect your assets.