How much do you have on the line if you were to be sued? Here's how to quickly add up what you look like to a legal opponent. Take our two-minute asset protection risk assessment and weigh that in with your risk profile to determine whether or not you should seek legal protection of your wealth.
In order to have the most accurate information, one should be familiar with the laws in his or her state and/or consult with an experienced professional.
Family Home / Primary Residence
- First determine the equity by assessing the quick-sale market value of the home minus the loan balance. Then check with your state to see what your homestead exemption is. That is the amount of equity that is protected in a lawsuit. This can range from nothing, such as Pennsylvania, to everything, such as Texas (except in bankruptcy),. Each state is different.
Additional Homes / Properties
- Perform an equity check by assessing the value and deducting the loan amount. If there's income on the property, that is another asset..
- Add up the value of the bank accounts, cash on hand, wholesale value of all equipment and furniture and other assets, and subtract the liabilities, lease penalties and property wind-down costs..
- Add up your cash, savings, bonds, retirement accounts and investments, then deduct any fees/penalties for liquidating. In some states IRAs and pension funds are fully or partially protected. .
- Add up the wholesale value, minus loan or lease amounts on any toys, cars, RVs, boats, planes, jewelry, guns, coins, etc., less any loans..
Let's walk through a sample asset protection scenario. Dr. Doe in 55 years old, runs a successful practice, pays himself $250,000 salary and takes regular distributions from his medical corporation. He owns a $1 million home with $725,000 of equity in California. As a single person, Dr Doe has $75,000 protected by the state of California, $100,000 if he is married or a single parent. In just the doctors home, $650,000 is within a lawsuit's reach..
The doctor also owns a parking lot that gets rented for weekend farmer's markets and seasonal events such as Halloween pumpkin sales and Christmas trees. It's worth $1.5 million and the loan is for $900,000. The property's income is almost $100,000 a year. In a fire sale, this is another $600,000..
The business, Physician Doe, P.C. is a wash. It has a healthy income, but insurance costs and the latest in medical equipment comes with the latest in medical equipment lease payments. It would basically pay for itself to be liquidated and nothing more. However, adding up several years of the savings bond purchases, stock market investments and a modest savings account, another $213,000 can be added up that could be used to satisfy a creditor.
In the case of our doctor, there's a million dollars of low hanging fruit for a creditor to collect. Judgment creditors have a legal right to whatever they can get their hands on. In today's world, it's not how much wealth you acquire, but also how much you retain. Your net worth is what you would keep in the event of a devastating financial event. Make that everything through legal asset protection planning..