What is asset protection and how to think about it properly
Asset protection is generally about two things.
Firstly, diminishing the risks of having your assets threatened, and secondly if someone actually goes after you make sure that you decrease the amount they can get.
It is all about keeping what you’ve got.
So what are the assets that we are talking about here?
Usually, we are talking about financial assets. Those would be cash, physical real property, such as building or factory that you own, intellectual property, etc.
Some other things could be considered as assets, such as your credit.
Your reputation can also be an asset.
When talking about assets it’s important to distinguish personal from business assets. If things go badly, you will want to protect both, depending on where the threat is coming from.
What kind of threats are there?
The biggest threat to your assets is creditors.
So, if someone sues you, you go bankrupt and your assets are being seized. This is the most common scenario, however, you could also take a deeper look.
Some people want protection from government instability, extreme events, and all possible likely and unlikely scenarios.
How to protect your assets?
When thinking about the protection we need to know where the threat is coming from, inside or the outside.
You are probably familiar with the concept of limited liability companies. What this basically comes down to, is that the investor is only liable for the amount they put in the company, nothing more than that.
You can put some money into a company, the company might fail at doing business, might end up in massive debt, but that debt doesn’t come to you personally. They can go only after the amount that was put into the company. Quite convenient, right?
The corporate veil is designed to protect the shareholders from the liability of the company.
When there are outside threats it means that they are coming at the corporation.
Inside threats are threats from within, threats that are coming at the shareholders.
Imagine that you’re driving down the street, you crash into a girl that happens to be the daughter of a high powered lawyer. Let’s say that he sues you. Well, now everything that you have is at stake.
He can come after your house, your shares in the company, etc.
You would be in a very bad situation.
Needless to say, you need to protect yourself before something like this happens. When it already happens it can be too late.
Precautions to take
You will certainly want to prevent being sued.
This means that you will set up proper business practices. You will not use someone else’s trademark, for example.
If you’re charging peoples’ credit cards when you shouldn’t you’re putting yourself in danger. Anything that can hurt someone could put you in danger of being sued. So, the first logical step would be to simply not do any of those illegitimate things.
The second thing that you should do is decrease your visibility. This means that you will make it harder for others to see that you have assets. This is one of the reasons why we do international asset protection.
If my assets are overseas, it is very hard for someone to look up what my assets are. This gives me an extra layer of protection.
Third thing is to put many walls around you, many legal barriers. You want to make it very hard and expensive to go after your assets. In this case, many will not sue because it will be risky and expensive for them to do so.
These are ways that you can use to not make yourself low hanging fruit.
Be mindful where you operate
Not every jurisdiction is the same. Some countries have suing cultures, while in others it’s not so common. If you can choose where to operate always chose the latter.
Some places have very brutal laws when it comes to hiring people, there is a lot of risks that your employee might come after you.
In other places, this is not an option for them.
We talked about the value in hiring people abroad, so you can check our article ‘’You don’t get what you pay for, you get where you pay for’’
If I have contractors, in let’s say Ukraine, the probability of them suing me is incredibly low.
If I’m operating in Amsterdam, and hiring locals in the Netherlands, the likelihood of those people coming after me is very high. Also, the likelihood of them getting something from me is very high.
These might not be something that you factor into your wages, but can potentially be a huge deal that can break you.
Decrease the possibility of losing your assets
After you’ve taken precautions that we’ve mentioned above, it’s time to move to the next step.
You will want to split the things up.
For example, you can have an operating company and holding company.
If one company is liable, the other one doesn’t have to be.
If the assets are spread out this will be very useful.
If you’re in the US you will want to take advantage of many exemptions that you can take. For example, in certain states, they can’t go after your home in the case of a lawsuit, no matter how high the value of the property is. This is called the homestead exemption. Also, in certain places, your pension fund is protected.
Many people love using trust as a form of asset protection. We already talked about trusts. These are one of the main vehicles of asset protection.
These are all examples of how you can build many walls around you in order to protect your assets.
Asset protection is a very complex subject. Many things vary from country to country, that’s why it is very important to be aware of all the different laws.
If you want help with asset protection, or advice feel free to reach out to us.