9 Ways To Keep Your Business From Placing Your Personal Assets At Risk
Florida law allows for many affordable strategies to keep your assets safe
It’s an unfortunate reality of today’s times: We live in a litigious society that puts everyone’s assets at risk.
While your primary residence, qualified retirement plan, and most annuities and life insurance investments are protected in Florida, many valuable personal assets – including other investment accounts and real estate holdings – could be lost if you or your business are sued.
Fortunately, Florida asset protection laws rank among the most liberal in the country and there are many affordable, tried-and-true strategies you can implement that offer solid asset protection in the event of a claim or lawsuit. Here are nine strategies Florida residents may consider to safeguard the assets they worked so hard to accumulate:
1. Structure your business carefully. While tax-planning will also impact which structure you choose, selecting the right entity for your business is an important step in the protection of your assets. For instance, if you choose to operate as a sole proprietorship, your personal assets are completely exposed to potential lawsuits. Corporations offer many tax advantages, but they can also be targets for creditors to attack because the corporate stock is historically subject to judgment liens – and in many cases, creditors have even been able to force the sale of corporate stock to satisfy the judgment.
In Florida, using limited liability companies (LLCs) as asset protection vehicles is a common strategy because they are legally separate from their owners. If an LLC can’t pay its debts, creditors can go after its bank account and other assets, but the owners’ personal assets like cars, bank accounts, and homes are generally safe. The LLC or partnership members can also create operating agreements that further strengthen asset protection, including restricting the transfer of certain interests to creditors of a single member or preventing creditors from participating in LLC affairs.
Incidentally, while LLCs are most commonly associated with operating a business or holding real estate, they can also be used to hold other assets, such as art, stock, boats, or antiques. Assets owned by the LLC are generally protected from creditors.
2. Be vigilant about preserving your corporate veil. Simply setting up a business entity is not enough to protect your personal assets from a lawsuit. Make sure the business is visibly separated from your personal life, with a separate bank account and checkbooks, the company name on all documents, and relevant property titled in the company’s name. It’s also important that you stay on top of any annual maintenance that’s required, such as paying state fees, holding meetings, and keeping minutes.
3. Always use proper contracts and procedures. Spotlighting negligent or fraudulent behavior is one of the easiest ways for creditors to penetrate your corporate veil and attack your personal assets. Don’t rely on email for terms in relationships, don’t hire people to work under the table, and structure sound lease agreements for rentals that put property and equipment titles in your company’s name. Be careful to only use licensed, bonded and/or insured professionals to support your business, from tax advisors to repairmen.
4. Purchase the right insurance. Not only will proper insurance pay for your legal defense if you are sued, it also covers your losses – and gives plaintiffs a different target to go after. Important plans to consider – depending upon your needs – include malpractice insurance, personal liability insurance, fiduciary coverage, personal disability income insurance, personal automobile insurance, leasing insurance, business non-owned and hired automobile insurance, D&O coverage, and business worker’s compensation insurance. Umbrella insurance policies are also wise – functioning as an “umbrella” that offers extra protection over any other type of insurance you carry.
5. Homestead your home. Homestead ownership is the best asset protection tool in the Sunshine State. While a few exceptions do exist to homestead exemption based upon the size of the property or the type of judgment debt, Florida’s homestead law provides one of the best levels of protection in the nation for a family home when it qualifies, with 100 percent protection against a forced sale.
To claim a homestead exemption, you must prove that:
The property is intended to serve as your permanent and primary residence
- The home is less than a half-acre if it is in a municipality or less than 160 contiguous acres in any county
- You own the property
- The property is located in Florida
- You live in the property
6. Take advantage of tenancy by the entireties. This type of joint marital ownership is one of the most cost-effective asset protection solutions available for married couples. In a nutshell, it prevents creditors of one spouse from attacking assets owned jointly by a husband and wife. It is only available to married couples, and its legal protection lasts as long as the marriage is intact and both spouses are alive.
Most states only extend the tenancy protection to real property, but Florida allows all types of property to be protected, including tangible and intangible personal property. Florida law further states that any bank account owned by a husband and wife is assumed to be a tenancy by the entireties account unless otherwise specified in writing.
7. Consider investing in asset-protected products. An easy way to protect your assets is by investing in financial products that are exempt under Florida law. For instance, the state of Florida offers a high level of protection for annuities, cash-value life insurance, IRAs, and 401(k) accounts.
8. Choose your bank wisely. A simple but effective asset protection strategy is using a bank located in the U.S. that is not subject to writs of garnishment, which allow creditors to take a percentage of your wages or other income to repay a debt.
It is also important to note that Florida law generally exempts the wages, bonuses, and commissions earned by a “head of household” from wage garnishment. Heads of household are typically defined as someone who provides more than half the support for a dependent.
9. Weigh the benefits of offshore planning. Opening and maintaining offshore bank accounts in asset protection jurisdictions – or using LLCs or trusts with foreign managers and trustees – may remove your financial assets from the jurisdiction of U.S. courts. But while these solutions can be appropriate in certain situations, they can also be quite expensive – and Florida’s friendly laws offer many other ways for residents to protect their assets. Before resorting to offshore planning, make sure you understand if it will truly help you beyond the benefits that Florida law already provides.
Doctors, lawyers, and other professionals can take heavy losses in malpractice suits. Corporate officers and directors can be held personally liable for poor decisions that result in major company losses. Small business owners can put their personal assets at risk by structuring their business the wrong way.
But thanks to Florida’s liberal asset protection laws, residents can devise effective strategies that shield valuable assets from lawsuits. An experienced asset protection attorney can help you personalize a plan that allows you to better safeguard your property and help achieve your long-term financial goals.
Asset protection comprises an integral part of our South Florida business practice at the law firm of Padula Bennardo Levine, LLP. Contact our experienced attorneys today for a consultation.