Asset protection for long-term wealth:
Creating wealth through your business and investments is just one-half of your financial planning strategy. The other half is about structuring your financial affairs so that your wealth is protected, writes Craig West.
Asset Protection is about using business practices and structures to create barriers between your assets and the risks faced by your business, or even by yourself personally. It’s really part of an insurance strategy, and like any other type of insurance, while you might think it ‘couldn’t happen to me’, you just never know, and if it does, you’ll be glad that your business and everything you’ve worked so hard to build is protected.
Asset protection isn’t just something that big business needs to think about. The landscape of litigation and liability has changed dramatically over the past few years and people who never before realised that they faced financial exposure are finding that they do. Anyone who owns a business, provides professional advice, owns property or has a high public profile is potentially at risk, and needs to make asset protection a priority in their financial planning.
So who and what are we protecting ourselves against? The list is long, but commonly includes:
- Employees − e.g. an employee is injured at work and it’s not covered by workers’ compensation insurance.
- Customers − e.g. if one of your products causes injury to someone; if your products don’t work or don’t work in the way they are supposed to; or if you are unable to deliver contracted products or services on time or on budget.
- The public − if someone is injured by you or on your property.
- Clients − e.g. if you give someone advice and they suffer loss as a result of taking action based upon it.
- Partners − e.g. if a joint venture partner involves your company in bad business or financial dealings.
- Creditors − everyone to whom you would owe money if your business failed.
While some of these events can be insured against, others cannot, and unfortunately it is often not until we are facing a claim that we find out whether there are circumstances that exclude the claim from being paid – and that’s when our own assets come into play. The objective of an asset protection strategy is to protect your
assets from any risks you face so that if you are sued, your assets are not at risk.
Six simple steps to asset protection
At the top of the list in any asset protection strategy is minimising the risks of being sued in the first place, which means making sure that your business practices are sound. For a professional, that means keeping up to date with ongoing professional development, taking extreme care when providing advice and seeking assistance from other experts when necessary.
For a manufacturer, it means having quality control systems in place that minimise the chances of production faults, complying with contracts and having a safe working environment. For property owners, it means maintaining the upkeep of the property and undertaking repairs quickly and safely. Such steps will help to minimise the foreseeable risks, but there are other unforeseeable risks that an asset protection strategy can help to protect you and your business against.
I recommend a six-step approach to asset protection. This approach is about creating the appropriate business structures that enable you to quarantine your assets from risks, while still enjoying the benefits of those assets.
Asset Protection
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