Protecting Your Assets
Every year I’m in practice, I'm further convinced that fundamental asset protection
begins with implementing affordable, tried-and-true strategies and simple habits.
There’s no need to reinvent the wheel. There are already laws on the books you can
easily implement that will provide you with incredible protection in the event of a claim or
Here are the eight critical strategies to consider as part of your personal asset
1. Choose the right business entity. There will certainly be multiple tax-planning
considerations, but operating as a sole proprietorship definitely isn’t your best choice for
asset protection. As a sole proprietorship, your personal assets are completely exposed
to a potential lawsuit. Setting up an entity, such as an S corporation or limited liability
company (LLC), is an important step in the development of your business and
protection of your assets.
2. Maintain your corporate veil. If you've set up an entity, don’t think that just having
the entity’s articles of incorporation in your drawer will save you when a lawsuit
comes. You need to maintain a separate bank account and checkbook for your
business; use the company name on all documents; title the property in the name of the
company if necessary; and, most important, maintain corporate records and log the
minutes at your annual meeting. Moreover, LLCs are not exempt from performing this
type of annual maintenance.
3. Use proper contracts and procedures. One of the easiest ways for creditors to
pierce the corporate veil and attack your personal assets is if you act negligently or
fraudulently. This can be avoided by having good lease agreements for your rentals,
placing property and equipment titles in the company name, having subcontractor
agreements and contracts on every project, not relying on emails for terms in an
important relationship, and never hiring people to work under the table. Only use
licensed, bonded, and/or insured professionals to help you in your business. This
includes but is not limited to asset protection specialists, legal and tax advisors,
contractors, and repairmen.
4. Purchase appropriate business and professional malpractice insurance.
Insurance is an important part of your business and should be included in your startup
budget. Insurance gives you the ability to take care of an incident in your business and
gives plaintiffs another target. Moreover, make sure you get the correct insurance
policy. Owning a rental property vs. a professional practice or retail store requires very
different types of insurance.
5. Obtain umbrella insurance. This type of insurance can be personal or business,
and it functions as an “umbrella” over any other type of insurance you may carry. It
costs an average of $300 to $500 a year for $1 million to $2 million in coverage. That
said, don’t assume you can throw caution to the wind because it will protect you in every
instance. As a rule, umbrella insurance won’t cover fraudulent, criminal, reckless, or
6. Place certain assets in your spouse’s name. If one spouse has a riskier
occupation or lifestyle, it can be extremely strategic to place assets in the other
spouse’s name. Generally, the creditors of one spouse cannot reach the separate
assets of the other. Therefore, asset protection in the context of marriage requires a
strategy whereby valuable assets are held as the separate property of the spouse with
the least exposure to risk. This is where a prenuptial or postnuptial marital property
agreement can be beneficial.
For example, in most states, if the husband is a business owner who incurs liabilities,
the couple can enter into an agreement that certain valuable assets will be the wife’s
separate property, thereby shielding those assets from the husband’s creditors.
Obviously, if both spouses agree to be co-debtors on a loan, such as when spouses
both sign the family home mortgage, then both spouses would be jointly liable.
A word of caution with this planning strategy: When conducting marital or estate
planning, you should carefully consider the implications of deeding property into one or
the other spouse’s name. By protecting your assets from a creditor in this way, you
could be seriously affecting the division of your assets if you divorce.
7. Consider the homestead exemption. One of the most powerful exemptions
available is the protection afforded to our individual personal residence, commonly
referred to as the homestead exemption. This is a statutory exemption available in most
states that protects a certain amount of the value of a person’s home from a creditor or
8. Look into tenancy by the entirety. If your state allows it, you can title your personal
residence as “tenancy by the entirety,” which means if one spouse is sued, the property
cannot be attached or bifurcated by the lawsuit. The beauty of this strategy is that it is
also statutorily based, meaning you don’t have to pay big bucks to implement or
maintain the designation. Just make sure your property is titled properly, and you can
protect your home in this way if your state allows for such a provision.