Asset Protection Planning: Are You Prepared?

In our litigious world, there are many threats to your wealth out there. Among the biggest are lawsuits and divorce.
A lawsuit could be completely frivolous, but still be very expensive to defend. With divorce, of course, no one enters into a marriage thinking about splitting up. But as we know, that can be part of life too.
The key is planning for these events in a proactive way, so you can actively protect your wealth. Then, if and when these events strike, they may be uncomfortable, but there’s a better chance you will emerge with only minor financial damage…so you can go on living your life the way you like to.
Many financial advisors don’t address these topics, but as a firm dedicated to protecting your wealth first and foremost, this is a part of our financial planning process.

Proactive Asset Protection Planning for Lawsuits

Many people think that if they just play by the rules, they will never get sued. Unfortunately, that is not always the case in today’s complex world. If you’ve got resources, unfortunately, you might end up being targeted with a lawsuit. Even a frivolous lawsuit lacking merit can be extremely expensive to defend.
That’s why you need to be proactive. With litigation, you need to put protections in place well before any hint of a problem exists. Otherwise, your protections are unlikely to hold up in court.
That’s why this is so important to address now, not later. If you’re a business owner or a professional in a high litigation industry, you cannot afford to wait. Invest some time now so you can prevent problems later.
At Cornerstone Financial Group, we can help you determine the best strategies to protect your assets from creditors. We’ll work closely with you to determine what you need, then work with you and your attorney to put a solution in place. Our full-service approach means we’ll help make sure it gets implemented correctly, saving you time and headaches.

Asset Planning for Creditors and Divorce

Most of us have met people who had a high standard of living but lost it after a divorce. It doesn’t have to be that way. The key is good communication and good financial planning.
Good financial planning helps you get your marriage started on the right foot. That may mean a pre-nuptial agreement or even something more secure such as an asset protection trust for separate property. It also may mean deciding, upfront, on joint accounts and property as well as what will be kept separate.
If you’re already married and now considering divorce, financial planning can help, too. The goal is to work together to preserve assets in an effort to minimize how much goes to divorce attorneys. Working with a financial planner can help inject objective analysis into an emotional situation, which may help all parties make better decisions.
If you’re a business owner, then you may need more complex strategies to help keep your assets safe during a divorce. Bottom line, the sooner you can get financial planning and asset protection help, the more moves you can make to shield your business interests, separate property, retirement accounts, and other assets.

Doing It Right With Professional Help

The key to all asset protection is it has to be done right. Done incorrectly, the asset protection may not hold up in court, and you may lose your assets. Or if the timing is wrong, you could be subject to fraudulent transfer laws that can unwind your protection.
Your financial advisor for asset protection needs to work together with your attorney to find the best avenue for your needs. Asset protection laws vary by state and your strategies may also need to change if you reside in a community property state.
The most important thing is to take action well before a divorce decree is in place.

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.

Disclosure: Securities America and its representatives do not provide legal advice. Please consult with your attorney regarding your specific situation.

Alan Meckler

Since 1988 Alan Meckler has been in the financial services industry helping families, professionals and small business owners plan, save and invest for their retirement in the most tax-efficient way possible. He is committed to helping empower families, professionals and businesses to succeed asinvestors. His firm is different from other financial service professionals because they first focus onall levels of protection first, which include life, disability, long term care, and health insurance, then savings and growth. It's a model that works. As a seasoned financial advisor, he recognizes that life has many unknowns, but a little bit of planning and preparation can make even the most difficult of times a little bit easier.

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