Preserving your Worth

The Business Monthly, May 2007

All business owners need a strong asset protection plan because owning and operating a business is risky. It’s that simple.

The greater the potential reward, the greater the risk. Many owners, amid the daily challenges of running a business, put asset protection planning on the back burner – until an unfortunate event (e.g., a wrongful termination claim from an employee, a customer claim, default on a secured loan) brings the need front and center.

Asset protection planning is designed to provide legal protection for your company and you personally against the wide range of liabilities that are inherent in owning and operating a business. And the likelihood of you or your company being sued is great. According to an article in the New York Times by Karen Harnad, executive director of the NFIB Legal Foundation, small business owners are targets because “they are more likely to write a check and be done with it.” In fact, the more successful the company becomes, the greater the likelihood that a suit will be filed.

No two asset protection plans are alike, but the design of an asset protection plan usually incorporates one or more of the techniques described below.

• Title assets jointly with your spouse as tenants by the entirety. Creditors can seize and sell assets owned by a married couple as tenants by the entirety (like your home) only if they have a claim against both spouses. If the claim filed by a creditor is against one spouse only (for example, only one spouse owns and works in the business), any assets owned as tenants by the entireties will be safe from creditor attachment.
• Invest in assets that are exempt from creditor attachment. All states provide that certain assets are exempt from creditor attachment. In Maryland, for instance, retirement plan accounts cannot be seized by creditors. It therefore makes sense, from an asset protection planning standpoint, to own as many exempt assets as possible.
• Form family limited partnerships or family limited liability companies. Most states limit a creditor’s ability to seize and sell someone’s interest in a family limited partnership or family limited liability company. Many asset protection plans, therefore, incorporate their use.
• Establish an asset protection trust. For the most part, assets owned by an asset protection trust are “bullet proof” from claims of creditors. While Maryland does not have an asset protection trust statute, Maryland residents can take advantage of asset protection trust statutes enacted by other states and countries.

The key question that all business executives should ask themselves is: “Do I have in place a comprehensive and up-to-date plan that protects my personal and corporate assets (or greatly reduces liability) against all the risks I face in owning and operating a business?”

With proper planning, it is possible to protect all of the owner’s personal and business assets, even in the worst of circumstances. The key to good planning, however, is timing. The best time to plan is before a claim arises.

We live in a world with many lawyers and too many lawsuits. Don’t wait until you are sued. Protect your assets now.

Maurice Offit, Esq., is president of Offit Kurman and chair of the firm’s Estates & Asset Protection Group. He can be reached at 301-575-0308 or at moffit@offitkurman.com

Reprinted with permission from The Business Monthly.