4 Tips for Protecting Your Assets
Business owners spend their careers striving to succeed and, with a lot of hard work and a little luck, to amass wealth. However, the work doesn’t stop when you reach your financial goal. A lawsuit or trying economic times could chip away at that nest egg. Here are four strategies you’ll want to consider to help keep everything you’ve worked so hard for.
1. Take a look at joint accounts. Any money you deposit into a joint account with your children, parents, roommate or business partner is at risk. The entire account could be wiped out if the joint owner files for divorce, incurs a tax lien or must settle a lawsuit judgment. Your joint accounts may be necessary—just keep the balance as low as possible to cover expenses.
2. Review your liability insurance. This will be your first line of defense in litigation. Make sure your liability limits have kept up with your assets. You’ll want to increase your personal umbrella liability coverage to an amount at least equal to your net worth. If you’re expecting to receive some money, either through an inheritance or other windfall, call your insurance advisor to increase your liability limits before you receive it.
Insurance is necessary, but it can’t protect you from everything. Policies are limited in what risks they cover and how much they pay. They also can’t adequately protect you from economic downturns and inability to pay creditors.
3. Create business entities. One of the most important steps to take is to separate your business assets from your personal assets. If you have a small business but don’t have a formal business structure, such as an LLC or corporation, you are operating as a sole proprietorship. These are simple to establish, but all of your personal assets are at risk if you are sued. Or, if you’re in an informal partnership, you are responsible for the actions of your partner. A lawsuit against your partner can put all of your assets at risk. You’ll want to create a business entity that shields your personal assets. You can learn about the different types of business structures here.
4. Consider a holding company. Once you establish your business structure, you may want to consider an additional level of protection. You can separate your business into two entities: a holding company and an operating company. The holding company holds the title to the business assets, leasing or loaning them to the operating company, which conducts the day-to-day business. This helps protect your wealth by having as little invested and maintained in the business as possible. If you own a highly successful business or one that has significant exposure to lawsuits, such as a restaurant or medical practice, taking this extra step should give you peace of mind over the long run.
When combined, these strategies should offer a great deal of protection should something go wrong. Planning in advance will help keep your hard-earned money where it belongs—in your accounts.
Janine Stinnett can be reached at 865-602-5204 or by email at Janine.Stinnett@pnfp.com.
