When Should I Do Asset Protection?
When Should I Do Asset Protection?
When should I look to do asset protection? A lot of people want to know about it: “When should I do it and what should I do?”
Typically, the trigger for them to come in and talk to an attorney is, “I just got sued and they named me as a defendant personally and also my corporation. And now I’m worried they’re going to come after me and take my house, my car, and my bank account. Can they do that?” Yes, it is possible for them to do that even if you have a corporation.
Don’t wait too long
“And what can I do?” Typically, once you’re at the steps of the courthouse, a lot of times it’s too late to do anything legally to protect your assets. There might be some steps that can be taken. But typically, once you’re getting close to that point, courts often look at any action you take as an attempt to defraud your creditor.
You know that you could owe some money, so now you’re hiding money. I mean, you’re transferring money to your friends; those are things that you cannot do. They are potentially crimes and courts will just reverse them. They’ll get the assets back and give them to your creditor.
There are legitimate tactics for asset protection and then there are scams and fraudulent activities like giving money to your brother or hiding it under the mattress, which is not legal asset protection.
The best time for asset protection
The best time for asset protection is the side of the continuum where there’s nothing on the horizon. There is no lawsuit, and everything’s going great. Let’s say you just started your company. That’s the best time to do it.
Then as you approach “Okay, I’ve got some debts. The business isn’t doing well. I just got sued. Now they have a judgment against me. Now they’re trying to collect. They’re freezing assets, garnishing wages, trying to seize everything I own.” Well, the farther along you get towards “They’re going to seize my assets,” the harder or impossible it is to do any asset protection.
Protect your assets as early as possible
So it has to be done early on in the planning stages, when you’re setting up the business, or the early stages if you didn’t set up your corporation or LLC correctly at first and finally have the right procedures and formalities in place. You continue to do that and operate your business properly the whole time. If you don’t do that, you’re setting yourself up for potential personal liability.
So, asset protection is even more valuable earlier on. But while your business is growing and you continue to operate, you can still change things. If I take a look at your business and I see 10 different things the way you’re operating your business that are going to get you sued and liable for a personal judgment against you, then there are still steps you can take now to protect yourself.
Don’t wait until you get sued
You can do that by segregating your assets, and having the proper procedures in place that are going to help you if you do face a problem in the future. However, if you wait until you just got sued and they just got a judgment, it might be too late. There could be some things that can be done but usually those are things that are going to border on being fraudulent transfers and a judge is going to reverse that.
Or it ends up in bankruptcy and the bankruptcy trustee says, “Hey, there are fraudulent conveyances everywhere. I’m getting these assets back. I don’t care where they went, I’m coming after them and I’m getting them back. I’m going to give them to your creditor or I’m going to take your personal assets because you transferred money from the business to your personal account.”
Whatever it is, those things can be undone. So, you have to be very careful and it’s always better to do asset protection planning as an early part of planning for your business. It’s extremely important because it helps protect you from liabilities. It’s not a matter of, “I just set up a corporation, so I’m good.”