Protecting Your Business and Personal Assets When Being Sued
A court can bring any kind of lawsuit against you at any time. If you don’t have the necessary protection in place, you could lose everything. A study by the Small Business Administration found that up to 53% of companies face lawsuits each year. Therefore, protecting your business and personal assets when being sued is crucial if you are to survive.
Incorporate Your Business
It is crucial that you incorporate your business as a limited liability corporation (LLC) as soon as you can. This clear distinction between personal and corporate gives you the power to separate assets. Assets such as vehicles and properties or anything that a court might take away from the business won’t affect your personal assets.
For example, suppose a hard-working medical malpractice attorney files a lawsuit against your cosmetic surgery. In that case, your cars, your home, and the contents therein will be safely protected by law.
Use Orders to Your Advantage
Further protection applies because the lawsuit is against your business and not you personally, such as a charging order protection for LLCs. A charging order protection clarifies that awards must go to the party holding the order, yet you cannot be forced to pay.
Additionally, the holder of the order must pay tax on distributions without the guarantee of receiving money. This typically ends up with a settlement in your favor or a dropped pursuit.
If you have enough time before your personal assets are frozen, you can transfer them to your LLC. However, it would be best if you acted quickly before a judge signs the order for execution. Once transferred to an LLC, you can place assets in an off-shore holding account to which you have access.
It’s best to attempt a transfer of assets as soon as a lawsuit has been issued since authorities will typically freeze them once the suit commences.
Trust in a Trust
One of the most common and easiest asset protection methods is to use trusts since it is complicated, if not, impossible for legal opponents to access trusts. Simply put, a trust is a legal arrangement for asset management. Assets could be property, contents, cash or cryptocurrency. They can be managed by an individual such as your lawyer or a group like asset planners.
You should be aware that assets in a trust are no longer accessible to you. Yet you can name beneficiaries by whom assets are accessible.
Use an Umbrella Policy
Liability insurance, also known as an umbrella policy, protects all your holdings if they are worth a significant amount. However, this will only help if you have cover of $10 million or more since anything less won’t protect you in the case of a high figure lawsuit.
Lawsuits are often claimed at a significantly higher rate than an insurance policy will cover. For example, a $2 million insurance policy is useless if you are being sued for $20 million. Premiums might be high, yet they are comparatively small should the worst happen.