Asset Protection: NOW…not later
An important business strategy is protecting business assets by creating an asset protection plan. Assets that need to be protected include: personal residence, business and investment real estate, bank accounts, retirement accounts, marketable securities, machinery, and business or personal vehicles. The more liquid an asset, the more attractive an asset can be to a judgment, lawsuit, or a creditor.
Threats to an asset include harassment, discrimination, divorce, malpractice, bankruptcy, and accidents related to a person or business property. An attorney will seek recourse by determining the monetary value of liquid assets by searching deeds and/or titles. Assets owned directly by a business or person are often easily reachable and can be used to satisfy a claim. Using the proper legal tools can help to make one’s net worth look less visible.
Business owners typically rely on insurance to act as a shield from lawsuits that can put their assets at risk. Typically, insurance payouts come from policies, not personal and/or business assets, leaving the perception that the business owner did not lose anything of value. These settlements usually happen quickly and with minimal fees, making it an easy way for attorneys to settle through negotiations. Consequently, insurance can sometimes increase the chance of a lawsuit, not discourage it.
STA recommends transferring assets to a limited liability company (“LLC”) to create an extra layer of protection. It is important to transfer high risk assets, those that are generally more dangerous in nature. For example, a heavy piece of machinery, like a semi-trailer, carries more risk of harm than a company car driven by an owner. Additionally, more valuable assets and those crucial to the production of business should always take priority when transferring to an LLC. For example, a semi-trailer used in hauling in operating the company is more crucial than an office desk or chair.
Asset protection is also important when a company incurs a change in their line of business or fears insolvency. Keeping assets in the operating company, puts them at the reach of creditors if the current line of business fails. Dissolving an operating company, without liquidating the assets allows the new company to continue to exist for a new line of business.
All asset protection plans will likely fail if they are not completed before an insolvency or judgment occurs to avoid a fraudulent conveyance ruling. Under the Uniform Fraudulent Transfer Act, a fraudulent conveyance is the transfer of property with the intent of delaying or defrauding a known creditor.[1][2] The court will investigate facts to ascertain the intent and timing of an asset transfer. For example, the court will examine if the transfer was made to a family member, whether the debtor retained control and use of the property, and if after the transfer rendered the debtor insolvent.[3] Additionally, the court will examine the timing of the transfer, was it transferred before or after a claim for payment was made, within the normal course of business, or years after the formation of the business. Any of these factors can conclude to a fraudulent conveyance resulting in the reversal of the transfer and make the assets become reachable in a judgment or lawsuit.
Don’t wait! Contact STA to start your customized Asset Protection Plan, today!
[1] https://definitions.uslegal.com/f/fraudulent-conveyance/.
[2] https://www.law.cornell.edu/uniform/vol7#frcon. Approximately 40 states in the U.S. follow the Uniform Fraudulent Transfer Act.
[3] https://definitions.uslegal.com/f/fraudulent-conveyance/.
