All types of investments involve a sort of inherent risk, and without appropriate asset protection strategies, your money could be exposed to a lot of financial liabilities. Be it a dispute over contracts, lawsuit from a vehicle accident, or creditor claims, not protecting your properties could lead to personal and financial repercussions undermining your success in investments.
It’s something most investors miss as they become so caught up in maximization of returns: structured asset protection. Structuring LLCs or any of the popular strategies can sometimes be complicated and take careful planning. Without that, your hard-won assets may be at risk from unexpected dangers.
One needs to have good asset protection strategies to reduce or eradicate the risks and challenges from investments. You can protect cash, apply specialized entities, and holding integral tenets of not letting personal liability. We will discuss seven important strategies to act for the protection of your asset. In this way, you can safely invest your money without fearing that your assets will be lost.
1. Never Sign a Contract in Your Own Name
One of the simplest, yet most effective ways of protecting your assets is by not signing any contract in your personal name. By signing a lease, or a purchase agreement personally, you expose yourself to direct liability. Have the entity, such as a limited liability company or a corporation, sign the contracts. This limits personal exposure by ensuring that, in case of a claim or a dispute, it is channeled to the entity and not to you in person.
Why It Matters: The use of an LLC or a corporation for the business provides protection to it under the law, so personal assets are protected from business liabilities. If the dispute involves a contract, then the creditor goes after the entity and cannot go after the owner’s personal assets. Just be very careful about how much assets the entity has—avoid using an entity with lots of assets when you know the transaction is high risk. Doing this avoids what could otherwise be a situation that the creditor might go after the entity’s assets.
2. Don’t Put Vehicles in Your Business Name
Many people will want to put vehicles in their business name for a deduction, but there can be hidden liabilities in doing this. For example, were an accident to happen with a vehicle, not only could the business be sued, but you can be sued personally, meaning you now are subject to a much higher level of financial risk.
Why It Matters: Keeping personal vehicles out of your business name helps protect your business from legal claims associated with vehicle accidents. Should the vehicle be involved in an incident, and you’re subsequently sued, the business’s assets and your personal assets cannot be touched, as long as the business isn’t implicated as the driver’s employer.
3. Protect Your Cash
Most investors have large sums of cash invested in personal accounts, which is risky should, for any reason, they face legal problems. Invest your cash into an entity like a Wyoming LLC, which will not only protect your cash but also spare it in a court case or from the claimant.
Why It Matters: Having your money in an LLC acts to legally protect that money from any impending claimants. You are effectively keeping your cash safe and can still access these funds for future investment, yet keep them free from personal liability.
4. Form a Holding LLC
This holding LLC is commonly used as an investing foundation of asset protection strategies for investors. This type of LLC would own other LLCs, holding real estate investments. Its two principal purposes are anonymity and charge protection.
Why It Matters: A holding LLC involves an extra layer of separation. The extra level of entity separates your investing activity from your personal identity. This structure also offers the charging order protection, avoiding a scenario wherein creditors take your LLCs if you get into a personal lawsuit.
5. Keep Properties in Separate LLCs
Having separate LLCs for each property, or for just a few properties, and not putting multiple properties into one LLC, will effectively restrict the risk exposure to the individual LLC only. This way, a legal problem with one property doesn’t enter and affect the others.
Why It Matters: When you segregate your properties into separate LLCs, you are separating risks. If one of your properties gets sued, the risk touches only the LLC that the property is under and doesn’t affect the rest of your portfolio. This way, the rest of your assets are not jeopardized.
6. Examine Equity Harvesting
Equity harvesting is done by extracting equity from your real estate investments and putting it in a separate entity, also done through a home equity line of credit (HELOC) or other similar financial products.
Why It Matters: Harvesting equity is also a way to shield your real estate from becoming the primary asset of interest for your and third-party creditors. Taking the equity out of the real estate and holding onto it separately, can reduce dramatically the amount of equity that is exposed to both outside creditors and potential legal judgments against you.
7. Create a Friendly Lien
Lien friendly is just that: making sure that a lien is strategically placed on your own property, through the artifice of an LLC. That puts up a facade of encumbrance as a bit of a warning to any frivolous creditors, who might look at it and see that, goodness, the property is already massively encumbered, and think twice.
Why It Matters: By recording your friendly lien, you help protect your property equity in the event of possible claims. This provides another layer of insulation because it positions the property as less attractive or encumbered to the full extent, therefore least effectual concerning creditors.
Conclusion
Effective asset protection is critical in safeguarding your investments and reducing financial risks. Personal immunity from liability in agreements, cash protection, and medicating troubled entity structures can guarantee a robust barrier against probable threats. Here are seven most crucial asset protection strategies that will shield your investments and boost your financial security. As much as possible, consult with a financial advisor or legal expert who can tailor these strategies to your specific requirements and circumstances.
