Asset Protection

The Truth About Asset Protection and Your Small Business


Turn on the evening news or flip open the local newspaper and you are sure to see a story about some small business owner getting sued. Litigation is rampant these days! Unfortunately, small business owners are increasingly becoming the target of damage lawsuits.

Search the internet and you are sure to find a plethora of self-proclaimed experts touting all sorts of schemes that can be implemented to protect your assets from creditors and personal injury lawyers. With so much information floating out there, how do you separate the fact from fiction, and the myths from what really works?

In order to sort out the misconceptions, let’s take a look at some of the most common myths relating to Asset Protection.

Myth #1- Only wealthy people benefit from Asset Protection.

False. You do not need to be a millionaire to benefit from asset protection planning. Ask yourself, do you have equity in your home, equity in your small business, equity in rental property you own, or simply the savings you have on deposit in a bank account that you have worked hard to accumulate. These are all things worth protecting, and a great deal of protection can often be obtained with a few simple steps. You have worked hard to accumulate the things you have; don’t let a frivolous lawsuit take those things away from you.

Myth #2- Asset Protection is complex and expensive.

Not true. There are many things you can do now no matter how small your small business may be. You can start by taking small steps to protect your assets. There is no magic formula that provides an instant fix to protect you. It is a process that starts with doing basic planning and taking small steps, and grows with your business as your business grows and becomes more complex. What is important is to start planning now rather than later. As Benjamin Franklin said, “an ounce of prevention is worth a pound of cure.” It is much better to try to avoid problems in the first place, rather than trying to fix them once they arise.

Myth #3- I don’t have to worry because I have insurance.

Not true. Having adequate liability insurance is a must for any small business, however protecting your assets through insurance alone is a very risky strategy. There are a few issues here you need to think about. First and foremost, have you read your insurance policy lately? If you take the time to do so, you might be surprised at what your policy does not provide coverage for. Receiving a denial of coverage letter from your insurance adjuster after someone just filed suit against you is horrifying.

The second issue is the policy limits you have in place. Although it is common these days for small business owners to have liability coverage in the $1 million to $3 million dollar range, it is becoming quite routine now to see damage awards from lawsuits in excess of these amounts. Once the dollar amount gets above your policy limit, you face exposure for paying the rest of the judgment. Unfortunately for many small business owners, everything they have struggled to build could be wiped out from a single lawsuit. Proper asset protection planning can help reduce this risk.

Finally, realize that sometimes we can be our own worst enemy by thinking we are saving money by doing complex planning without professional help. Don’t purchase a pre-packaged asset protection plan…every small business is different. Consider at least the opinion of an asset protection attorney for an hour’s time to lay out a game plan and make sure you are heading in the proper direction.