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Asset Protection: what it is and how it works

You’ll Kick Yourself If You Miss This: Financial Freedom Opportunity #1 in a Down Market

Written By: Alexis Martin Neely

Yes, the market is down.  You’ve probably lost a little money.  Maybe a lot.  You’ve heard me talking about opportunities.  Perhaps you’ve wondered what I meant by opportunities. Today, the first of two opportunities you cannot afford to miss in this market downturn. This one is for business owners.

Planning Opportunity #1:  Proactive personal asset protection
If you own your own business, this is the time to think about asset protection.
A few years ago, when I heard about asset protection, I poopoo’d it as something that didn’t apply to me.
First, I figured I didn’t have anything to protect and didn’t need to waste money protecting assets for the future when I needed to focus on growing those assets now. Second, I thought it was something fear-mongering lawyers put out there to generate more business, but wasn’t really necessary. Last, I thought it was only for the uber-rich, who were setting up shell companies in places like the Cayman Islands. Lo and behold, was I wrong on all fronts.  And, if you think asset protection doesn’t apply to you, you’re probably wrong too.

Asset protection means taking control of what you can control - your own behavior and decisions – so you don’t end up in a place of reaction and fear due to events outside of your control.  It means proactively safe-guarding what you have acquired and what you are building for the future.   It means working with a trusted advisor to guide you during times of uncertainty.  It means making smart choices, not from a place of fear, but from a place of empowerment.
Let’s start there.

Is asset protection important even if you don’t have much?
Of course, loss hurts no matter what.   Some might say it’s even more important when you don’t have much because the impact of a loss of the little you do have is so much greater when you only have a little. Check out this case. This couple used an advanced asset protection strategy to protect their kids’ 529 college accounts and less than $200,000 of other assets.  And, thank goodness they did or they could have lost everything after a business deal went bad.  At least, at the end of the day, they still had what they safe-guarded. Safe-guarded from what you might ask? This is the part that was most surprising to me. I used to think the threat of lawsuits was mostly hyperbole pushed by over-active lawyer imaginations.  Over the past two years I’ve learned through my own personal experience that’s not the case.  As my success has grown, I’ve been threatened with more than one lawsuit.

Having an asset protection plan in place to protect my most valuable assets has allowed me to approach each of the situations calmly and without concern. Here are a few examples:

  • When I moved into my new house, we hired a cleaning crew to prepare the house for us. One of the housekeepers was cleaning a window and fell through plastic covering a vent left behind when our floors were refinished.  Of course, her employer threatened a lawsuit.
  • A former employee who was fired for theft has brought a retaliatory labor board claim against me.  Lawsuit filed.
  • When I moved out of my former house, my landlord and I disagreed about who was responsible for the remaining time on the lease despite my having found a suitable replacement tenant they didn’t want.

Each of the circumstances that led to these unfortunate situations was and is outside of my control.  What is within my control and has contributed to my ability to calmly respond without stress instead of being forced into a place of reaction and fear is knowing my personal assets are protected. So, how does all of this apply to you?

As a business owner, there are many things outside of your control.

What if one of your businesses is forced into bankruptcy due to the business failure of one of your key clients?  What if a disgruntled employee decides to bring a lawsuit?  What if someone gets hurt on one of your properties?  What if there is a disagreement between you and one of your partners, clients or vendors?  What if you can’t make the payments on your equipment or property lease?

Without asset protection in place, all of your personal assets could be at risk.
With proactive asset protection planning, not from a place of fear, but from a place of empowerment, you would have the peace of mind of knowing that your children’s future is safe-guarded. During this time of uncertainty, that kind of peace of mind can be priceless.  It will allow you to make business decisions more aggressively and ultimately achieve more of the success you want. The key is to be proactive because otherwise, the asset protection planning may not work, no matter how good it is. If you wait until something has happened, you cannot put in place asset protection plans without violating laws against fraudulent conveyance, which prohibit you from moving assets once you are facing the threat of a lawsuit.

Here’s an asset protection action plan for you to take right now:

  1. Make sure your business is properly incorporated as either an LLC or a Corporation.
  2. If you are incorporated, be sure you are in compliance with all State filings, records of meetings, separate sets of books and bank accounts, and other record keeping requirements.
  3. Consider advanced asset protection strategies, such as a Nevada LLC, which provides “charging order” protection, or an irrevocable trust to shield your personal assets.
    Asset protection is necessary even if you are doing everything right.  In fact, I’d say it’s necessary especially if you are doing everything right because that means you’re successful.  And the more successful you are, the more important this is.

Remember, it’s not about reacting from fear, it’s about empowerment.

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