Asset protection is a provision acceptable under the law and is, therefore, legal by all terms. It may only be considered illegal if it is proved in a court of law that a person is exploiting it to commit fraud. An example is transferring all your profits to your personal 401(k) account and individual retirement account (IRA) with the aim to collapse a company.
1. 401(k) and IRA
401(k) and IRA are types of retirement accounts whose contributions may not be used in the repayment of debts. Cantleydietrich.com knows that you may require the assistance of an asset protection attorney in the opening and updating of those accounts. Your lawyer will advise you on the best contribution plans. He or she will also provide legal guidance to ensure that you do not commit to any arrangements that may be perceived as illegal, resulting in lawsuits. Once the accounts are ready and set up, they provide a safe harbor under which you may place a percentage of all your profits from your business operations. This provides some guarantee regarding your retirement life in the event that your business fails in the future, landing you in debt.
2. Liability Insurance
Liability insurance is a type of insurance policy that provides cover against business losses. It comes in handy in the event that a business fails resulting in losses and uncleared payments to suppliers. In such situations, the contracted insurance companies provide the much-needed debt relief. A business may be insured by one or more insurance companies depending on its scope of operations. For example, a small- or mid-sized company operation on a capital of up to a few million dollars may be insured by a single insurance company. However, a multinational company enjoying an annual turnover of up to a billion dollars may require to be covered by several insurance companies. To add to the relief, some insurance companies cover part of the attorney expenses incurred in the cause of the court proceedings.
3. Register Assets Under an LLC
An LLC refers to a limited liability company. This means that liability for any debts and losses is strictly limited to the company and, therefore, does not extend to the directors or owners of the company. In the event that an LLC is unable to repay its debts, it is likely that its creditors will go to court seeking the company to be liquidated. During liquidation, only assets registered under the company’s name may be auctioned. The directors’ and owners’ assets or even cash in hand and bank remain untouched. That is the main difference between a limited liability company and a sole proprietorship. With the latter, the owner’s assets may be confiscated and auctioned until the suppliers’ debts are covered in full.
Asset protection provides entrepreneurs with a lifeline in the event of the collapse of their current businesses. It may not be viewed as a way to evade debt repayment but rather a new starting point. An entrepreneur may utilize the salvaged assets to kick-start a new business venture.