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 we refer to the rule of entropy, roughly: 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 the business as an asset.
Whenever an asset is important it is worth your time to protect it. 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 regard to asset protection planning for their business. 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 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 that can threaten your business as well!
Nevertheless, structuring the assets of the business and the business itself is a tremendously powerful way of shielding you, your family, and the wealth tied up in the business from being taken down. However, the plan must be put in place to effectively guard your business, not just “left on the chalkboard” as wishful thinking.
Here is a funny 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 as an asset, 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 by a seasoned professional, considering all of the variables in play. Above all, however, this essential planning must be completed before it’s really needed. So don’t put it off and leave your business at risk.
Reference: Private Wealth (March 7, 2014) “Asset Protection For Business Owners”