As a business owner, you probably realize that besides turning a profit, which is not easy itself, your business and personal assets are susceptible debts and mortgage obligations to third parties and vendors, claims for damages caused by your employees, product or professional liability, and consumer-protection issues. It is important to insulate your business and personal assets from the claims of creditors. Specifically, it is done by employing legal strategies, put in place before a lawsuit or claim arises, that can deter a potential claimant or help prevent the seizure of your assets after a judgment.  The process to plan and to implement these strategies is called asset protection. 

Common strategies in asset protection. 

Strategies used in asset-protection planning include separate legal structures or arrangements, such as corporations, partnerships, and trusts. The structures that will work best for you depend, in large part, on the kinds of assets you own and the types of creditors most likely to pursue claims against you. Some of the more common legal vehicles used for asset protection include corporations, partnerships, and trusts.

One prominent exception to the limited liability of corporate principals relates to providers of personal services. Personal service liability includes work done for or on behalf of another by doctors, attorneys, accountants, and financial professionals.

In addition, liability protection offered by a corporation will be available only if the corporation carries itself as a separate and distinct entity, apart from the individual shareholders or officers. If a corporation has no significant assets, a creditor can attempt to prove that the corporation is not acting as a separate and distinct business entity but is the alter ego of its officers or shareholders. This strategy is called piercing the corporate veil, and if successfully proven, it allows the creditor to reach beyond the corporation to the assets of its shareholders.

Moreover, a revocable trust in which the grantor reserves the right to alter the trust by amendment, or to dissolve a part or all of the trust by revoking it is not a powerful asset-protection tool like an irrevocable trust. The latter, for lacking of control, discourages creditors from pursuing them. 

Last by not the least, please note, mere association with some for the purpose to make profit makes you a partner and your personal property is susceptible to all claims related to the activities you carry out for the purpose of the partnership. 

Consider the services of an attorney in developing an asset-protection plan that works best for you.