Business Owners: How to Keep Your Money from Becoming Other People’s Money

As a business owner, you know how to make money. It is what you do for the ultimate goal of achieving financial independence. The critical question is whether you know how to keep it.

The sad reality in our litigious society is that, as soon as you open for business, you become a target for people looking for ways to liberate you from your money. To creditors, disgruntled employees, regulators, litigants, customers, or ambulance-chasing lawyers, it is always open season on your assets, especially when they are left out in the open.

Business owners with personal assets such as real estate, retirement plans, savings accounts, luxury cars, and anything of value are ripe for the pickings, especially where there are no protections in place to keep them out of reach. Now is the time to study up on the legal protections available to you and that are relatively easy to establish.

Asset Protection Strategies for Business Owners

Know how to structure your business: There’s more than one way to structure your business, and the one you choose can make a difference. Current laws allow business owners to structure their business in ways that create a legal wall between your business and personal assets.

For example, structuring your business as a limited liability company (LLC) can shield your personal assets from creditor claims and other liabilities. LLC laws vary from state to state. You can establish your LLC in a state (other than your own) that provides the greatest protection.

Know how to entrust your assets: With an irrevocable trust, you can transfer ownership of assets into the trust, which puts them beyond the reach of creditors or claimants. The drawback is you give up control of the assets, which must be managed by a trustee you name. It is a fairly straightforward procedure to set up a trust, but it’s essential to work with competent legal counsel since it’s irrevocable.

Know how to insure your business: The best protection against business-related liabilities is a general liability insurance policy. The more insurance coverage you can get the better because the policy will become the deep pockets target for litigants. In most cases, litigants will concentrate on pursuing the insurance company rather than spending time and money litigating in court for your personal assets.

Know how to protect your retirement plans. Safeguarding your retirement plan assets can be a bit more complicated, depending on the type of plan and the state. Generally, qualified retirement plans receive protection from federal bankruptcy laws. However, the extent of those protections can vary from state to state. A lot depends on the type of plan. As it relates to other liabilities, if a plan is set up to benefit the business owner solely, it may not be protected. Under ERISA, a retirement plan must include at least one other employee to receive protection

Creating a claim-proof asset protection strategy is the surest way to protect your assets from the unwanted advances of those who want to make your money theirs. However, each strategy has legal and tax implications, which is why you need to do your research and seek the counsel of competent legal advisors. Be cautious of tax avoidance scams that can put you in legal jeopardy.