The United States is a litigious nation; well over 15 million to 20 million civil cases are filed in the U.S. every year. There are nearly 3 million African American-owned businesses. Small businesses and their owners are prime targets for frivolous lawsuits. As a result, learning about your options for protecting your assets is crucial.
Prominent asset protection attorney Jay Adkisson is the author of Asset Protection: Concepts and Strategies for Protecting Your Wealth. Here are some strategies outlined by Adkisson and other experts for asset protection:
Equity Stripping
Equity stripping is the usage of liens to decrease the asset’s equity value. The mentality behind this strategy is that it will be difficult for a creditor in a civil judgment to make a claim against an asset that on “paper” has little equity value due to the lien(s) that are already pledging it.
The Employee Retirement Income Security Act of 1974 (ERISA) & Federal Bankruptcy Laws
State exemption laws exempt certain asset classes from civil judgment execution and bankruptcy settlements. While the asset classes and their coverages vary by state, typical asset classes include real estate, retirement plans, life insurance proceeds, pensions, annuities, public benefits, tools of trade, wages, personal/miscellaneous property, and more.
Insurance Coverages
Basic personal and commercial insurance policies are essential for asset protection methods; these include having adequate coverages over your vehicles, home, along with personal liability coverage in terms of personal insurance policies. For commercial policies, the general liability, professional liability, workman’s compensation, product liability, and cyber law liability are coverages that would be applicable. Personal and commercial umbrella policies can also be acquired for coverages beyond the general policy amounts.
Business Entities
Choosing to not operate your business as a Sole Proprietorship and to incorporate the business, can separate your personal affairs from business affairs, creating a limited or separation of liability scenario. Said business entities include S-Corporations, C-Corporations, and Limited Liability Companies.
Trusts
The use of domestic trusts has been utilized by asset protection attorneys and consultants where the creator of the trust would also serve as the beneficiary.
Uniform Fraudulent Transfer Act (UFTA)
As a general rule, all asset protection strategies should be in place prior to the start of a civil lawsuit, to avoid potential violations of The Uniform Fraudulent Transfer Act (UFTA). UFTA monitors actions by debtors to make sure that there are no actual intentions to hinder, delay, or defraud a creditor.
Unscrupulous Asset Protection Consultants
There are a number of unscrupulous asset protection consultants who promote strategies that end up causing problems with tax authorities, court officials, and other regulators. Adkisson warns that research of any strategy should be conducted and asset protection planners, consultants, and representatives should be properly experienced in the area in which they are practicing.