Asset protection is its own form of legal planning—one that incorporates the other types of legal planning, as well as fields such as risk management. Business owners engage in asset protection planning to have a viable defense against litigants and creditors.
In science it's referred to it as the rule of entropy: things tend toward chaos. It turns out that the same principal holds true for businesses. Chaos in business is litigation. If you are a small business owner, then you simply cannot have your greatest personal asset, the greatest family asset, and the activity you are most proud of eroded, chipped away or swallowed whole by litigants or creditors. You need a plan to protect your business and its assets.
Businesses are a unique kind of asset. Protecting them requires a certain kind of thinking and planning. Unfortunately, most business owners simply have not done their due diligence with asset protection planning. However, even if you’re in the know, it is worth reading the recent Private Wealth article addressing this important topic, “Asset Protection For Business Owners.”
Asset protection is always about assessing the risks to the asset. The primary risks to any successful business are litigants and creditors seeking a piece of the pie. No one really likes or trusts creditors, but far and away it is litigation that can take down a thriving operation. It doesn’t even have to be a “legitimate” lawsuit if it's litigation against the business itself. While we are at it, let’s not forget about personal litigation or divorce.
Nevertheless, structuring the assets of the business as well as the business (i.e., LLC vs. partnership) itself is a tremendously powerful way of shielding you, your family, and the wealth tied up in the business from being taken down. But here’s the rub: a plan in place is often a saving grace where the plan left on the chalkboard is always just wishful thinking. Here is a unusual bit of math the article pulls out of a recent study by Price Associates: “About 89.7% of these business owners said they are concerned about such lawsuits, but only 26.9% have an asset-protection plan.” Why so few?
Whatever the source of risk to the business, there are a wide variety of strategies that can be employed to limit or eliminate the risk. A powerful protection might even stop a suit dead in its tracks long before a plaintiff engages the court! To do the most good the plan must be developed with all the variables in mind and by a seasoned professional. Above all, this essential planning must be completed before it’s really needed. So don’t put it off and leave your business at risk.
You can learn more about this topic as well as other strategies on our website under the tab entitled business planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning.
Reference: Private Wealth (March 7, 2014) “Asset Protection For Business Owners”