Written & Legally Reviewed by Bryson Stephen, Attorney at Law
Following are five asset protection tips that can help you keep what is yours in the event someone hits you with a lawsuit. These tips may help if someone is accusing you of financial, physical or emotional harm that could trigger a lawsuit. Are you in a high-risk profession? Has someone already sued you? Read through and then use the form or number on this page to further the discussion.
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Asset Protection Tip #1: Plan Early
People often look to protect assets after a legal claim arises. There are ways to protect assets after someone serves you with a lawsuit. Though, the courts look most favorably on those who have set up their plans well in advance of a claim. Therefore, asset protection tip number one is to get started now. Protect your nest egg. Even if someone has sued you, the only time we have is now. So take action.
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Divide and Conquer
For domestic tangible assets, setting up multiple entities for different segments of your enterprise can erect protective firewalls between them. This is Asset Protection 101. If you have 10 rental properties, a construction company, a restaurant, a Subway Sandwich franchise and a gas station all owned by one company, that’s a recipe for disaster. A lawsuit in any one of the businesses can expose the assets of all. Hold the rental properties in one or more limited liability companies, depending on the amount of equity in each. You should hold the other businesses in separate corporations or LLCs. You can hold the stock or membership in the companies in a precisely drafted asset protection trust and/or LLLP, for example.
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Think Offshore
Domestic asset protection plans depend on a U.S. court’s willingness to respect the structure — and that can vary by judge and jurisdiction. So, we have seen justices ignore domestic asset protection plans. For liquid assets, using a powerful tool such as an offshore asset protection trust can fit the bill. Placing the funds held therein in a safe international financial institution puts assets outside of the local court’s reach. Going offshore may be controversial, but it is legal, ethical and moral when done right. Plus, we have seen it work time and time again.
Think about it, if you use a cellular telephone, a computer or own a TV you have indirectly sent money offshore. The units are made offshore. The companies that direct their creation pay for their manufacture by wiring money to offshore banks. Moreover, of the top 50 safest banks rated by Global Finance, only nine are located in the US. All are located on the bottom half of the list. The safest US bank is only 26th on this list as of this writing. So, there are banks overseas that are much safer than US banks.
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Don’t Count on Bankruptcy
Since the 2005 bankruptcy reform (BAPCPA), a debtor generally cannot claim more than $125,000 (adjusted periodically for inflation — currently higher) in homestead equity if that equity was acquired within the 1,215 days (about 40 months) before filing. This cap applies specifically to equity acquired during that window — it doesn’t override a state’s unlimited homestead exemption for property owned longer. Florida, Texas, Kansas, and a few other states still offer unlimited homestead protection outside that lookback period. In addition, unlike before, the code now requires that a filer meets with a credit counselor within six months before filing bankruptcy. They must attend money management classes that the debtor must pay for.
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Don’t be Flashy
Driving a Ferrari, placing pictures of your lavish vacations on Facebook and boasting about your latest business triumph may inject your ego with adrenaline. But it also puts a target on your back. The, “He makes a lot of money so I should have some of it,” crowd is attracted like a moth to the light above your built-in barbecue. Use a little discretion. Asset protection tips number five is, “Don’t be flashy.” At least you could buy a black Ferrari instead of a red one.
Conclusion
The bottom line is to get it done. Set up an asset protection plan and don’t wait until bullets are flying over your head. Put your assets into various protective legal tools. One LLC per rental property is a smart idea so the liability from one rental property doesn’t topple all of your dominoes. Done properly, offshore asset protection planning is the strongest form of wealth preservation. Bankruptcy, especially nowadays with the new laws, is the last resort. Why not keep everything you have and live an asset protection lifestyle? Many clients do and sleep like babies. Finally, don’t flash your cash. You just end up impressing people who don’t really care. Then you set yourself up for law firms to attack you like a drooling pack of hungry coyotes.
What about you? Need more information. Fill out a free consultation form on this page or call one of the phone numbers above. As a firm focused exclusively on asset protection, together, we come up with a plan that sets you up for a life of worry-free financial freedom.
About the Author & Legal Reviewer
This article was written and reviewed for accuracy by Bryson Stephen, Attorney at Law. While every effort has been made to ensure accuracy, no guarantee is made that this content is complete or error-free, and laws are subject to change. This content is for informational purposes only, does not constitute legal advice, and does not create an attorney-client relationship. For guidance specific to your situation, consult with a licensed attorney.
