The following are hypothetical, but real, situations that can happen to anyone in their everyday lives!
- The Unincorporated Business: A well off person, let's say his name is "Cal", starts doing business online and decides to not incorporate. Three years and millions of dollars in profit later, Cal's product hurts someone. Since Cal didn't incorporate his business, he is now personally liable for the damage that the product caused, rendering certain bankruptcy. Make sure not to follow Cal's mistake and not only incorporate, but incorporate with the right entity choice!
- Doctor and Malpractice Insurance: A Doctor believes that his malpractice insurance is sufficient to cover his liability and decides not to protect his assets. A few years down the line, the Doctor is sued for Malpractice (a frivolous lawsuit) and his Malpractice insurance only partially covers the claim. Now, the Doctor is faced with an open-ended liability against their business and personal assets. Make sure not to follow the Doctor's Mistake and utilize Medical Malpractice Insurance and Asset Protection simultaneously. Most Asset Protection Plans cost the same or less than one year of Medical Malpractice Insurance, so it's certainly feasible to have both to minimize your potential liability!
- Liability for Personal Injury on Land: A family owns a house on a few acres of land with a pond. The family uses the house as a play area for their minor child and her friends. While the father is hosting other children at the house, another child slips and falls into the pond and drowns. The parents sue the owner. Without Asset Protection, the parents are in a low-bargaining power and certain to lose all of their assets.
- Liability for Teenage Driving Child: Husband and wife own assets in their individual names, even though their state is a Tenancy by the Entirety State "TBE." Their teenage son gets his license and borrows their car. He negligently drives the car into a fence, allowing a vicious dog to run away and attack a child. The parent's of the attacked child sue the parents of the teenage driver for negligence. The moral here is to never allow teenage children to drive your cars, and if you must -- at least provide them with their own insurance policy. Teenagers are at a higher risk of liability due to their maturity level and it's best to minimize their control over assets that are in your name. Further, if you live in a TBE state — you should title your assets as such to give yourself heightened protection.
- Business Owner and Liability Insurance: A business gets sued and the businesses insurance coverage increases to the point where the business owner can't afford the insurance anymore. Instead of having no insurance and being unprotected from lawsuits, the business owner decides to use Asset Protection to safeguard its assets. This is a great use of Asset Protection, although it is also great to have an Umbrella Policy (even if small) to cover MSC liabilities.
- Co-Partner Liability: A co-partner of a business gets sued personally and since they have unlimited joint liability, the litigant goes after both partners. In this sort of situation -- it is best to first not incorporate in a general partnership as the liability is unlimited and next, to have personal Asset Protection as that will deter lawsuits.
- Slip and Fall on a rental property: A man owns a rental property and rents it out to a family. One day, after a recent storm, a family friend visits the property and slips on ice on the sidewalk. The family friend sues the landlord "man" for 1.2 million dollars for pain and suffering as well as the injuries. Since the man's assets aren't protected, he loses all of his hard earned money. The moral here is clear — protect your assets in the event of lawsuits!
- Piercing Corporate Veil: A business owner incorporates a business as an LLC. They open a separate bank account but in the interest of convenience, use that bank account for both personal and business obligations (rather than properly writing themselves a salary). One day, a customer trips and falls on the property and sues the business owner. Since the business owner has been co-mingling his personal and business assets, the customer is allowed to go after both his business assets and his person assets as there is no "veil" separating business and personal liability. You should ALWAYS observe corporate formalities when conducting business. Failure to do this may result in many problems down the line.
- Divorce without a Premarital Agreement: A couple gets married without a pre-marital or post-marital agreement as to how their assets will be divided upon divorce. Five years later, to no fault of either party, they divorce. After the divorce proceedings are over, the wife takes 60 percent of assets along with a hefty settlement award. In this instance, it is important to understand that marriage is essentially a "contract", and you should always have a pre-marital and/or post-marital agreement in the event of the contract being breached (divorce).
- Sale of a Business and Later Lawsuit: A business owner decides to retire and sells his business. The buyer operates the business for a year, but does so very haphazardly, running the business into the ground. The buyer then sues the business owner for fraud — stating that he didn't get all that he bargained for and that the business owner sold the buyer a defective business. Here, it is important to note that the business owner should have obtained proper disclaimers for liability pertaining to future use. Further, if the business owner's assets are protected — the buyer should have very little recourse as he stands to win very little.
These are just some of the more common scenarios that we see happen every day. It is highly imporant to make sure that your assets are protected prior to potential claims arising as Asset Protection is most effective before a threat comes.
Contact our office if you would like a Complimentary Preliminary Consultation regarding protecting your assets.
Yes, You Can Lose Everything!
You may think that your wealth is safe and that you don't need protection. But don't delude yourself and accept reality — for every 60 minutes you spend making money, spend 60 seconds thinking about how to protect it!