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Asset Protection

Asset Protection
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The basics and what you need to know about asset protection.

We work our entire life to accumulate some personal assets that will allow us to enjoy ourselves as we get older. The threat of a lawsuit, even one that has no merit, is certainly a concern, as just one suit could easily wipe out all the money that you’ve worked so hard for.

With the threats of these suits building every year, there a number of simple steps that you should take to protect their assets from illegitimate creditor claims. You can start right at home by reviewing and beefing up your liability coverage on your homeowners’ and auto insurance policies. Many may choose to go a little further by purchasing an umbrella policy providing additional liability coverage that will cover limits above your primary policies.

The first rule of thumb in asset protection is to make sure that take preventative action with your valuable assets before you have a creditor knocking at your door. Once an actionable claim has been made, hiding or shielding assets may end up causing you more harm than good if litigation takes place. You need to have your plan of action in place before there is a problem. A court may find questionable transfers as fraudulent, exposing those assets to the judgment creditor. 

The basic rule of thumb to consider is that the more you have to protect, the more complicated your protection will be. If you fall into this category, it’s strongly advised that you should hire competent counsel and a professional financial adviser to assist you. 

As a homeowner, your insurance policy protects you from financial loss for you actions on your property or for property damage. Your auto policy performs the same function for anything related to your automobiles. Liability covers bodily injury, property damage and some additional expenses of other drivers, their passengers and your passengers should you or a driver covered by your policy causes an accident. If you’re seeking higher limits you may want to consider an umbrella policy. 
If you’re a renter, you still have important considerations with respect to insurance. Your landlord’s insurance will not cover a renter’s personal property. In addition to covering you contents, a renters’ policy will cover additional living expenses if a fire or other circumstance forces you to move temporarily. Renter’s insurance can also provide liability protection from someone claiming injury while in the rental.

For a business owner, consideration needs to be given to how the company is held. Creditor protection can be accomplished through the formation of a C corporation, S corporation or L.L.C. In those type of entities, the shareholders have limited liability and can only lose what they’ve invested in the business, while personal assets aren’t subject to liability. This is completely different than a sole proprietorship, which would leave the individual owner wide open for unlimited personal liability for all business’ debts. If in fact you operate as a sole proprietor, it’s crucial that you have an umbrella liability to cover any disasters of the firm.

You do have some protection of you assets under the law. Your wages may be garnished only to pay child support, back taxes and defaulted student loans. Asset accounts such as retirement plans, profit-sharing plans and pensions can’t be seized by creditors. Creditors are also not allowed to touch the cash value of a life insurance policy or to attach the death benefits from the policy.

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