Whatever you earn does not matter like what you keep. This is especially important because of the impact liabilities can have on your income as well as your investments. Some of the harmful liabilities to personal wealth are such as taxes, lawsuits, claims from creditors and divorce. Good asset protection is, therefore, important since almost everyone is exposed to a certain liability in one way or another.
However, what majority of people lack is an appropriate plan for asset protection before the actual claim happens or before a financial crisis arises.
The Need for Asset Protection
Usually, the objective of developing a better asset protection strategy is to significantly lower the risks by protecting your personal or business assets from liabilities. These strategies must be in place before a claim or a lawsuit. This way, the claimant will be deterred from seizing your asset after the judgment. Common asset protection strategies are such as trusts, corporations and partnerships. The best strategy depends on the kind of assets you have as well as the type of claims likely to arise against you.
Nature of Claims
Claims made against you can either be internal or external. The internal claims are limited to the asset of an entity such as a partnership. This means claims are limited to assets of the entity. On the other hand, external claims can extend to personal assets. For instance, if the entity owned a car, and you caused an injury to a pedestrian, that person can sue both you and the entity. This means you could meet the claims from personal assets as wells as the entity’s assets.
Basically, business activities are the major source of risks associated with liability claims. This is because they get involved with creditors, customers and employees. Developing an asset protection strategy is, therefore necessary. Professionals and property owners should also consider various forms of asset protection such as insurance, to safeguard their finances.