By: Hillel Presser
What differentiates commerce businesses from traditional businesses when it comes to asset protection?
Potentially more assets in need of protecting.
Both types of business owners have assets such as homes, cars and bank accounts that need protection in the event of a lawsuit – whether it’s a personal suit or one targeting the business. E-commerce businesses may need more financial protection to cover their wealth of intangible assets, including domain names, website content, intellectual property, trademarks and patents. Additionally, an e-commerce business may prove to be more of a lawsuit liabilitybecause it’s vulnerable not only in the state where the storefront or warehouse is located, but essentially everywhere substantial connections are made, including internationally. In that sense, theneed to create, maintain and regularly update an asset protection plan becomes more urgent.
To legally shield wealth from lawsuits and other potential threats, including divorce, business owners of all types should have an asset protection plan. This multi-layered strategy involves a range of techniques to title assets such as homes, savings and property (tangible and intangible) in the event that a claim is brought against the business or owner. It’s not a guarantee that the protected person will avoid lawsuits or other financial calamities, but it can guarantee they’ll lose fewer assets if the worstdoes happen.
I advise clients to work with an attorney to create a plan that’s the best fit for their specific financial situation. Clients should: 1) educate themselves, 2) inventory their wealth, 3) assess their liabilities, 4) decide the best asset protection tactic or strategy to use with each asset inventoried, and 5) execute the plan.
• Educate yourself. Clients should understand what’s going on when theirattorney is creating theirplan, how it relates to their life, and what changes will trigger the need for an update. They should learn what they can and can’t transfer as well as whothey should and shouldn’t transfer assets to, even temporarily. For instance, if they “gift” a home to their children shortly after or in proximity to a civil claim filed against them, in the event of a judgment that gift may be looked upon as a fraudulent transfer. It could be reversed, making their home susceptible to the creditor judgment. Education is key to maintaining long-term asset protection.The Presser Law Firm, P.A. offers complimentary books on asset protection and an asset protection worksheet at www.AssetProtectionAttorneys.com; submit a request in the contact form.
• Inventory your wealth. They should include both tangible and intangible financial recourses. Tangible assets include but are not limited to: their home, real estate, bank accounts, vehicles, boats, etc. Intangible assets include but are not limited to: patents, copyrights, franchises, goodwill, trademarks, domain names and trade names, etc.
• Assess your liabilities, present and future. Some present liabilities could include current creditors (whether or not they have claims against the client), personal guarantees on home or business loans, and the client’s marital status as well as longevity of your marriage. Future liabilities include unexpected potential financial risks. A failing business in an economy downturn is a good example.Surely many businesses didn’t contemplate their demise in the financial and economic crash of 2008. Those owners without anasset protection plan in place prior to 2008 were out of luck when their life savings, homes, real estate and other wealthy were jeopardized by creditor lawsuits. The best advice fore-commerce business owners is to be proactive – the threat of a suit can bring a business to its knees and the best way to protect themselvesis to practice financial self-defense and lawsuit-proof their assets.
• Decide whether or not to re-title their assets, what entity formations to use, and whether equity stripping is appropriate for assets still inadequately protected. Only non-exempt assets need to be re-titled. Exempt assets are those that cannot be seized in the event of a judgment. All non-exempt assets should be re-titled as exempt assets and/or transferred to more protected entities such as a Limited Liability Company, Limited Liability Partnership or Family Limited Partnership, to name a few. Each entity has its own advantages and disadvantages and each person may have specific needs that make one of these entities more advantageous than the others. Alternatively, these assets can be titled to either domestic or international trusts. International trusts, such as the NEVIS trust, are especially protective because the laws of most preferred international trust locations favor the owner of the trust over creditors. Any unprotected assets can be stripped of their equity. For example, taking out a loan on a home that the client owns free and clear would make them more undesirable to a creditor than if they had full equity in the home.
• Implement the plan and maintain the protection over the years. Asset protection plans should be reviewed at least once a year and whenever there is a potential for litigation. Also, integrating an estate plan into anasset protection plan is essential because an unexpected death intestate could tie up an estate in litigation for years.
Asset protection is important for all business owners in today’s litigious society. E-commerce businesses are even more vulnerable to lawsuits and potentially have more assets to protect. Business owners should enlist the assistance of anasset protection attorney to create, implement and help maintain a lawsuit-proof plan, and they should have an estate plan as well.
About Hillel L. Presser
Hillel L. Presser’s firm, The Presser Law Firm, P.A., represents individuals and businesses in establishing comprehensive asset protection plans. He is a graduate of Syracuse University’s School of Management and Nova Southeastern University’s law school, and serves on Nova’s President’s Advisory Council. The Presser Law Firm, P.A. offers complimentary books on asset protection and an asset protection worksheet to help you create an inventory at www.AssetProtectionAttorneys.com; submit a request in the contact form.