We have all heard the expression before but what does it mean when it comes to asset protection?
Savvy
business people separate their "eggs" into different "baskets" by
diversifying their investment portfolios, carrying insurance and even
backing up their computers remotely. Ships are built with this same
principle in mind, sectioning off the hull in multiple compartments so
that if one section takes a hit it can be sealed off and the ship
remains afloat.
While the principle of diversification is
universally embraced in business and investing, it is surprising how
many people unknowingly violate this principle when it comes to
protecting their assets. If you look at the portfolios of even the most
astute investors, with their assets perfectly allocated in various
holdings, you will often find one thing that is not
diversified...ownership. Their home, real estate holdings, and other
assets can be traced back via one easily accessible data point, their
Social Security Number. By failing to diversify their ownership, all of
their eggs are in one basket and entirely at risk if they ever suffer a
legal attack.
This leads us to an important principle of asset
protection-compartmentalization. By having different assets owned or
held by various entities that are separate from you, you dramatically
reduce your risk of loss in the event of a legal attack. If one asset
or entity runs into trouble, i.e. a tenant in your rental property
slips and falls and sues you, only the assets in that particular entity
are at risk. They cannot lay claim to your other assets or entities.
The
general rule of thumb for compartmentalization is to limit the amount
of assets in any one entity to 20% of your net worth or $250,000. To
maximize protection it is advisable to use entities that are
established with financial privacy, meaning they cannot be traced or
tied back to you by a predatory third party. A private Nevada
corporation is the perfect vehicle for this purpose and will shield
your assets from legal attacks.
Carlos Lee, MBA, is the senior consultant for Asset Protection Consulting Group.
Visit Asset Protection Consulting Group to learn more about how to bulletproof your assets from future lawsuits.
