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Asset Protection
Advantages Of Asset Protection
Imagine you are a defendant in a lawsuit. What will happen if there is a large judgment against you? While insurance - liability insurance, errors and omissions insurance, and other types of insurance - is an important component of any asset protection plan, what will happen if your insurer refuses to pay because of a policy exclusion?
Insurers lose money when they pay claims and will often take advantage of policy exclusions to transfer risk to you. Even if your insurance policy covers the judgment, what if the judgment is in excess of the insurance policy's limits?All insurance policies have coverage limits. In these cases, the judgment creditor may be able to access your savings, investments and even your home to satisfy the judgment unless you have an effective asset protection plan in place.
Perhaps you want to ensure that your hard earned assets remain in your family. I routinely work with clients to create plans for asset protection. Whether it's protecting assets from creditors, providing for a loved one who has creditor issues, is in an unstable marriage, has special needs or lacks skills to manage their finances, my experience and personal approach can help you achieve peace of mind knowing that what you've worked so hard to earn will be secure.
Who Needs Asset Protection?
You and your family work hard to build a strong financial foundation. Why not take some time to protect your future? My clients often consider asset protection planning while they are also preparing an estate plan.
A common perception is that asset protection is necessary only for very high net worth individuals and families. However, even those of more modest means may benefit from asset protection strategies. The ability to protect your assets — savings and investment accounts, real estate, businesses, investments, retirement accounts — can have a positive impact on your financial future.
Another misconception is that asset protection is inappropriately used only to avoid paying what someone lawfully owes for good and services. However, joint and several liability (commonly referred to as "deep pockets" litigation) may result in financial loss to a business or person whose relationship to a loss event was very remote. In such cases, the defendants who acted directly to create the loss are judgment proof or have minimal assets that are reachable.
What Is Asset Protection?
By organizing your assets to maximize their value for you, your family or your business in the face of creditor attack, an asset protection plan can give you peace of mind and protect you and your family as well. You may not be able to prevent a lawsuit, but an asset protection plan can increase the chances that a judgment against you won't jeopardize everything you've worked hard to accumulate.
Asset protection is multi-faceted. Violating fraudulent transfer or fraudulent conveyance laws may defeat an asset protection plan. It's best to prepare an asset protection plan before an event giving rise to potential liability (such as an accident or property loss) occurs.
Time is of the Essence
Implementing an asset protection plan well in advance of an accident or loss is less costly and more likely to be successful. Unfortunately, it's human nature to believe that such events only happen to "others." After a loss event takes place, options are fewer, more expensive, and less likely to be effective.
Protection For Businesses
Personal Liability of Business Owners
Many small business owners operate under their own name, or simply "do business as" under another name. These arrangements are known as sole proprietorships. Owners of sole proprietorships have unlimited personal liability for claims against the business. In partnerships, partners can have unlimited liability for claims against the business and against other partners.
Shortcomings of LLCs and Corporations
Business owners may create limited liability companies or corporations to protect themselves from personal liability for claims against their businesses.
However, in some cases where businesses (including corporations and limited liability companies) and business owners are sued in court, the entity is disregarded and the owners are personally liable for the judgment. Known as "piercing the corporate veil", this is because the owners made serious mistakes in the day to day operation of the business, jeopardizing the liability protection they thought they had.
In Florida, a single-member LLC has substantially less protection than a multi-member LLC. To maximize the value of a Florida LLC, additional options must be considered because of this somewhat unique limitation.
The Hidden Cost of Bargain Basement Vendors
While it may appear to be inexpensive to use an online vendor to create a business entity, these vendors are prohibited from giving legal advice. Only an attorney with experience in this area can help maximize liability protection of an LLC or corporation.
With my clients, it's far more important to take the time to understand and partner with them to create an effective asset protection plan that they understand and can follow.
My Approach
With more than 25 years experience as a lawyer and 20 years as a judge, my clients appreciate my insight and ability to convey complex concepts in a clear way.
We advise clients on the formation and operation of their businesses to maximize liability protection. That includes examining different entity options, choosing the one that's most appropriate, creating and registering the entity, providing start up documents and, most importantly, advice on day-to-day operations to maximize liability protection.
LLC operating agreements and corporate bylaws that are meticulously drafted can make the difference between a successful protection plan and one that is less effective. Calabrese Law uses provisions in these documents that maximize protection and improve our clients' bargaining position with future creditors. These provisions are lacking in nearly all similar documents that our clients may bring to us from other firms at the start of our representation.
Avoid These Mistakes
A real estate investor owned several residential properties which he leased to his tenants. Unfortunately, someone was injured on one of his properties when a wrought iron railing on a balcony broke and they fell to the ground several feet below, sustaining serious injuries. A court awarded the injured party a significant monetary judgment against the property owner.
While the owner had liability insurance on the property where the accident occurred, the insurer refused to cover the judgment because the railing that failed was rusty. In the municipality where the accident occurred, rusty railings were a violation of the building code. The insurance contract excluded coverage for situations where there were building code violations. This is a common feature of most property insurance policies.
The owner was left to pay the judgment from his own assets. To make matters worse, all the owner's properties were titled in his name only. The judgment creditor was able to reach all of the owner's properties to satisfy the judgment, and the owner lost all of his properties.
Protection Options
An effective asset protection plan must be customized for each business, person, and family. A "one size fits all" approach may be well-suited to advisors interested in earning a fast fee and moving on to the next client, but may not be as effective as a plan unique to your needs and situation.
Whether it's protection for your business, or protection for your assets, such as real property, investments, bank accounts, motor vehicles or future generations of your family, I will create an effective asset protection plan that works for you. By thoroughly examining your goals, together we will develop a plan that meets your needs.
When you choose me to be your attorney, I will explain legal options for asset protection. I help my clients navigate through different elements of asset protection plans to find the right fit for their objectives and budget. Call 203-592-0878 or complete and submit the online contact form on this website to find out more about an asset protection strategy for you.