Asset protection law is one area in the law that is critical to your financial survival. Asset protection is a wide body of law. It includes tax laws, business structuring, estate planning, and law suit protection. Actually, there isn’t any discipline in law that is really considered “asset protection law.” There isn’t a class for it in law school. In fact, asset protection is almost never mentioned in law school. Oh, they go through the corporate shield, LLC’s, limited partnerships, but it is more of a business structure attitude than an asset protection law discussion.
How Asset Protection Attacks Work
Here’s how the attack works. What happens if you are upside down in your real estate investments, but you have a great little corporation that is a very profitable business? If the real estate all defaults and there are a ton of deficiency judgments, you will ultimately lose the corporation too. The real estate investments are not part of your business. They are personal investments. Therefore, the attack is coming from the personal side of your life. Your corporation isn’t going to protect your business from the personal attack. The attorneys that set up the corporation never even entertained the thought that your real estate would take down the business. They just bragged about how your business lawsuits wouldn’t threaten your real estate holdings.
I have a student who called one day and said he had solved all his problems. He was a new student and hadn’t learned his lessons. He proudly stated that he had put every asset he owned into a corporation, and now nobody could ever take the assets away from him. BIG MISTAKE! (Big mistake under asset protection law and tax law.) If somebody sues him personally, they get the corporate assets – since the corporation has all of his assets, they get all the assets. They don’t even have to round them up, because all of his assets are concentrated in the corporation.
You’ve always got to think: Where is the attack coming from? How do I block that attack?
Asset Protection Law Divided Into 2 Sections
I like to divide protection of assets into two broad sections – protection of personal assets and protection of business assets. The principals of asset protection law that govern the two sectors are different but overlapping. The major issue is determining where the attack will be coming from and then figuring out how to shield it.
The attack can come from the business side of your life, or it can come from the personal side of your life. If your business gets sued for putting out a bad product or if your business fails, the attack on your personal and business assets will be coming from the business side of your life. If you get divorced or you get sued because of an auto accident or a “slip and fall” at your house, then the attack will be coming from the personal side of your life. The body of asset protection law used to defend against one attack won’t be the same body of asset protection law you’ll need to defend against the other attack.
Corporations and limited liability companies are used to protect your personal assets from an attack coming from the business side of life. If they are used properly (that’s a big IF), the corporation and LLC should protect your personal assets. They are great legal tools and form the basis of limited liability shielding of personal assets from business activities. It is often misunderstood, but neither a corporation nor an LLC will protect business assets from a business attack. The business attack can take down the business.
The part that people really don’t understand is that a personal attack can not only take away your personal assets, it can also easily take down your business. Attorneys don’t even begin to try and solve that problem. There are ways you can protect your business from your personal liabilities.