Proactive Asset Protection Planning for Lawsuits
Asset Planning for Creditors and Divorce
Doing It Right With Professional Help
Frequently Asked Questions about Asset Protection
I’m a business owner—are there any practical steps I can take in the first place to avoid getting sued?
Yes, there are. There are two basic things you can do: 1) choose the right business entity and 2) get the proper insurance policies in place.
Your choice of business entity can help keep your personal assets separate from those of your business. That way, if there’s a lawsuit, generally only your business assets are at risk. Structures to consider are corporations, limited liability companies, and limited liability partnerships.
Second, find out what insurance coverages might provide cost-effective protection. Errors and omissions or professional liability insurance is a must if you’re in a higher risk industry. General business liability policies can often protect you if there’s an accident on your premises, for example. Homeowners insurance too can be useful for personal liability and you can add an umbrella policy to expand your liability cover. Even life insurance policies can be used for preventative purposes—for example, to fund a buy-sell arrangement with a business partner, which could potentially prevent a disgruntled partner from taking legal action.
Is my 401(k) retirement account safe from creditors?
Generally, yes. Federal law provides unlimited asset protection to ERISA-qualified retirement plans including 401(k) accounts. IRAs are generally protected up to $1 million in assets in event of bankruptcy. That means if you file for bankruptcy due to a lawsuit, usually the bankruptcy court allows you to keep these funds. Some states
provide even more protection to some accounts. However, due to some changes in the 2005 Bankruptcy Reform Act’s exemptions, some states may exempt less.