Many things, like how much money you can borrow, are dependent on your debt-to-asset or income ratio. The more assets you have, the more likely you can borrow funds. However, there is a downside to having a multitude of assets. If you are sued, you can lose those assets as part of a settlement. A further complication is that if you are tied to your business as a single entity, a lawsuit can not only affect your personal assets, but company ones as well. This is why once your assets reach a certain level, you should look into securing and protecting them.
What is Asset Protection
Asset protection is basically the legal act of protecting your assets against civil litigation. Without a proper asset management plan in place, you could stand to lose very heavily if sued in civil court. By understanding the process involved in protection cases, you can get a better understanding of why it’s important to have a plan in action.
There are a few different parts to asset protection cases. First, the judge will look at your identity. This can get tricky when you are a business owner, because you may or may not be the same legal entity. After that, they will verify the nature of the claim, find out if it is valid and if it is dischargeable or not. Then they will review who is suing, and finally they will review your assets.
To protect your assets, you should go through them carefully and try to settle on a way to arrange them. This could include investing in asset protection software. If you are a business owner, you will want to see if changing your company’s listing would be beneficial to you or not. While going through your assets it is important to seek counseling to ensure that nothing is missed.
Personal Assets and Business Assets
Personal assets are assets that you own independently of any business assets. These funds should be placed in trusts or other forms of accounts and not interact with any of your business assets. Keeping the business assets separate from your trusts is extraordinarily important when you are discussing asset protection. If you use your business assets as a personal funding then the courts will consider them personal accounts. If you are being sued they can be accessed as part of the litigation.
This can also get messy for tax purposes and can set you up for evasion litigation. If you are using asset protection software, then you need to make sure everything is clearly separated. You need to keep your personal financial life entirely separate from your professional one. This is not only the cleaner, easier method to defend in court, but it offers you levels of protection that would prevent a civil case from rendering you bankrupt.
A good asset management plan is not and never should be a substitute for insurance. Asset protection plans do not offer litigation funding, nor do they provide lawyers and court fees. Paying for insurance is the only way to know for certain that you’re going to be able to secure immediate counseling and will not cost you extra out of your assets. Long court cases can be extremely costly and in these sorts of cases, most insurance will pay for itself. This also frees up your time to run your business. You simply have to forward the case on to your attorney and let them take it from there. Further, insurance for legal matters will assure that you will be represented even in cases where assets have been frozen.