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November 1, 2004
By Monish Datta
Total Asset protection involves figuring
out and applying a lawful series of techniques that
protect your assets from claims of future creditors.
The techniques are designed to deter potential creditors
from going after you, and frustrate them if they do,
generally by making it difficult or impossible for
future creditors to grab hold of your assets or collect
judgments against you.
Every business owner needs a comprehensive
asset protection plan because owning and operating
a business can be risky. For example, businesses may
default on open accounts with vendors, or default
on mortgages or other secured loans from banks.
Further, many of these debts may be personally guaranteed by the
owners. Potentially, owners or employees may commit negligent acts
while carrying out company activities.
A complete asset protection plan can prevent or significantly reduce
risks, and insulate business and personal assets from the claims
of creditors. Unfortunately, many small business owners are unaware
of these principles, or simply misunderstand them.
Your degree of exposure to risk of liability, the type of assets
you own, and your total net worth are essential factors to consider
when you and your lawyer develop a strategy for asset protection
Insurance is the most common asset protection technique. By "transferring"
the risk to an insurance company, you can usually protect your assets.
But even if you buy insurance, it might not cover all possible risks
that you face, or the amount you buy might not be sufficient, or
the insurance company may be able to deny the claim (perhaps it
could claim there were misstatements made in your application),
or the insurance company may become insolvent. Asset protection
planning helps you prepare for these "wild-card risks"
All assets are not the treated in the same manner. Some assets
are exempt from attack, while others need more protection. State
law governs whether a property is exempt or non-exempt. When looking
at your state law, be sure to check to see how much of an exemption
is allowed for the particular type of property - it may be completely
exempt, or exempt only up to a certain amount. Using the applicable
exemptions, you and a knowledgeable attorney can structure your
property holdings to turn non-exempt property into exempt property.
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