There are many reasons that an asset protection strategy might be something to consider. Whether you have investment/rental properties or are a small business owner determining how to best protect yourself and your family from creditors can be critical to your long-term financial health.
Any real estate that is purchased to sell for profit in the future or to produce rental income is generally considered investment property. Whether you have a vacation home at the beach or a rental property in the city these sources of extra income can turn into huge liabilities without the right planning in place. If you own a second property in your name any personal creditor will be able to attack that investment property. Conversely, if any tenants, guests, or others on the property sustain injury they will be able to attack not only the investment property, but also the owner's personal assets such as bank accounts, investment accounts and primary residence.
For these reasons it is often prudent to transfer ownership of any personally owned investment properties to a Limited Liability Company (LLC). If your investment property is owned by an LLC personal creditors generally cannot make a claim on the property. Creditors of the LLC are similarly limited when making claims against the LLC owners' personal assets.
Many business owners as well as certain types of business professionals are also at risk every day from claims that are made against their business. Owning and operating a business as a sole proprietorship is one way to practically invite a lawsuit that can reach all of your personal assets. Having your business set up as a general partnership is not much better.
Setting your business up as a Limited Liability Company or Corporation can provide you with the extra layer of protection that can sometimes make the difference between preserving your hard earned money and losing it all. If you are in a profession where you cannot shield yourself from liability through an LLC or corporation another way of sheltering your personal assets is through the use of a Family Limited Partnership (FLP) or similar family company.
It is also important to remember that you can't fix the roof when it is raining outside so with asset protection it is best to plan during sunny times. If you are already in financial trouble with creditors there will not be much that can be done to protect your assets.