Image Licensing Protections: An Introduction

Understanding The Legalities Of Asset Protection

17 July 2023

Judy Alexander

Asset protection in American law is a class of techniques for insulating your assets from legal risk exposure. Before you develop asset protection plans, you need to have a solid idea of what is right for your circumstances. You should also understand what constitutes exposure, who could explore asset protection, and what the available legal and financial instruments might be.

Legal Exposure

Three main types of exposure exist. First, assets may be exposed to lawsuits. If someone sues you, they might ask the court to transfer or liquidate your assets to pay damages. Second, non-exempt assets may be exposed in bankruptcy. A bankruptcy court might sell your assets to satisfy creditors. Finally, assets may have exposure during a divorce.

Who Needs Asset Protection?

An asset protection lawyer will encourage anyone with significant liability exposure to develop a plan. The classic example would be a doctor's office because it has exposure to medical malpractice lawsuits. If someone successfully sued the doctor, they could potentially pay millions of dollars in damages.

Many professions have similar exposure. A contractor could have exposure if someone sues over because a building defect caused an injury. Many businesses have exposure the minute they open their doors to the public. Also, some businesses have exposure because of customers' potential financial losses that are tied to their services.

Individuals also have exposure. A high-net-worth person could have exposure if they divorce without their assets sitting in the right financial vehicles. The same sort of exposure can appear in bankruptcy, too.

Tools

Fortunately, an asset protection attorney can recommend numerous tools. Business owners can use limited liability corporations or similar structures to insulate their assets from the company's losses. You can pay yourself as an employee or officer of the company, and that makes your earnings separate from the company's exposure. If the business declares bankruptcy someday, the court will leave your assets outside of the company alone.

Many retirement accounts have legal exemptions. Annuity and life insurance programs may, too. Your primary residence is exempt in most proceedings as long as there isn't a mortgage or contractor lien against it. Notably, this gets trickier when handling divorce because laws governing common property kick in. However, prenuptial agreements and premarital asset structures may protect your interests.

You should meet with an asset protection attorney before committing to any of these options. They can assess your potential exposure and recommend appropriate solutions. Also, they can assess how well a particular solution is likely to hold up against legal scrutiny.

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