Did you know that half of physicians are sued for malpractice by the time they reach age 55? Doctors aren’t the only professionals who face the risk of a lawsuit in a sue-happy society. Lawyers, financial advisors, and many more professionals are at risk.
If you’re in a profession where you might face a suit or you have a sole proprietorship, you need to be ready in the event a client decides to take legal action. That means you must know how to protect your assets.
The good news is asset protection can be as simple as taking these seven steps. Use this guide to get started, and protect what you’ve earned.
1. Keep Business Separate from the Personal
The first step in asset management is to separate the personal and professional. As a sole proprietor, you may set up a bank account in your name and use that for both business and personal transactions. You may file taxes as an individual, even if it includes your business activities.
If you want to protect yourself, you must separate the personal from business assets. Your first move may be to incorporate your business as a separate legal entity from yourself.
Keeping a business bank account and filing taxes separately can reduce accounting headaches. It also upholds your corporate veil.
2. Spring for Insurance
Another step in asset protection is getting the right insurance for your practice or business.
You may have thought you had coverage under a home owner’s policy or another insurance policy. Chances are you’ll need some specific forms of business insurance. This often includes liability insurance geared for your profession.
Umbrella insurance may be another consideration. This insurance covers both your business and personal insurance. In this way, it gives you extra protection in most situations.
3. How to Protect Your Assets With a Trust
An Asset Protection Trust can also help you keep your assets safe from a lawsuit. This type of trust is particularly useful for wealth protection. It ensures the assets in the trust are available for the beneficiaries you name.
That allows you to create a legacy that creditors can’t touch. Of course, the major drawback here is that once an asset is in the trust, you can’t get it back out. As a result, you need to think through using a trust.
If your only concern is protecting your assets, then a trust may not be the right option. If you’re considering estate planning as well as asset management, then it could be a good option.
4. Transfer Assets to Your Spouse
Next on the list of ways to protect your assets is transferring some to your spouse. You could decide to sign over property, such as cars or houses, as well as bank accounts or other assets.
This moves your assets beyond the reach of creditors. Even if you’re running a sole proprietorship and haven’t separated personal and business assets, these assets are no longer your property.
Keep in mind that you don’t want to transfer everything to your spouse. You may also want to be careful about how much you transfer or what you transfer. If your relationship ends up on the rocks, they may walk away with a fair bit of your property.
5. Consider Tenancy by Entirety
There are a couple of methods of asset protection that look specifically at your house. For many people, their home is their most valuable asset, and losing it could be devastating. As such, there are a couple of different ways to protect it.
The first is to look at tenancy by entirety. This is a statute-based way of titling the property that makes it impossible to attach the home to a lawsuit. If someone sues you or your spouse, your home is protected.
To take advantage of this, you need to make sure the property is titled the right way. Keep in mind this only protects your personal residence. It also isn’t an option in every state.
6. Consider the Homestead Exemption
If a lawsuit would mean you need to declare bankruptcy, you may lose all your assets. You can still protect your personal house by way of the homestead exemption.
This exemption is available in most states. It allows you to protect a certain value amount from creditors, even when you’re in bankruptcy. Often, this can be the difference between keeping your home or losing it.
7. Use the Right Contract and Procedures
Finally, you’ll want to make sure that you keep all your legal paperwork in order. This can extend to everything from bringing a new client on to contracting out work.
You want to be sure that, even if you don’t perform, you won’t be on the hook. If you don’t use appropriate contracts, then you may find that you’re legally responsible for damages.
If you’ve acted negligently or fraudulently in contracts, then you may find that a lawsuit can pierce the corporate veil. An example might be buying company equipment in your personal name. Relying on email discussions is also risky.
Even hiring a subcontractor can be risky. If they don’t perform the work to standard, cause damage, or even fail to fulfill a contract, then the client might sue. If you don’t have the right contract in place, then you may be on the hook for the subcontractor’s behavior.
Protect Your Financial Future With Great Advice
Knowing how to protect your assets is a must in today’s business environment. Taking these seven steps is a great way to get started and keep everything you’ve worked hard for safe.
Looking for more financial advice or tips to help you build a successful business? You’re in the right place! Our archives have plenty of insightful how-tos and guides to help you build a more successful future.