Asset Protection 201 1.
Asset protection is asset by asset. Each asset is quarantined and protected separately. A blanket protection plan is usually ineffective. Placing the title of your real estate in either your personal name or jointly with someone has high risk. Similarly running your business as a sole proprietorship maybe convenient but is very risky because it exposes your whole wealth to potential business creditors. Remember it is a pass through business where liability passes through from business to owner without limitation. To protect and preserve your wealth your asset protection plan must be an economic disincentive for your predator creditors.
2. Separate your assets by using separate legal entities. Don’t mix your safe assets with your other riskier assets. Your creditors can’t take what you don’t have. Don’t put everything in your name. As much as is possible use a separate entity for each liability generating asset and never mix liability generating assets. For example, residential rental units should not be owned by the same entity which owns a cash generating business. Don’t own your apartment house with your stock portfolio account. If you own real estate each property should be under a different company name and be the only asset in that company. That reduces contagion risks as a problem with one asset will not affect the next one.
3. Avoid or minimise doing business as a “general partnership.” Not only will you be responsible for your own financial problems, but you may be held responsible for each and every-one of your partner’s problem(s); even though you had absolutely nothing to do with it and you can prove it 100%. Deeper pocket theory states that he who has the most to lose, will most likely lose it. Any general partner can commit the partnership (and hence every other general partner) to any legal contract. All general partners are jointly and severally liable. Consider having a limited company as the general partner if you have to.
4. In volatile economies, internationalize your asset/wealth protection plan. Few countries in the world will automatically honor a judgment against you in your home country. Remember the cases against some Zimbabwean entrepreneurs who were charged for corruption but the country could not extradite them. One case was brought against an RSA based entrepreneur and failed. Your creditor must re-litigate his case in the foreign country and put up a bond and pre-pay attorney fees. If he loses his case he must pay your attorney fees. Finally, your creditor must prove that the laws of their country are invalid, the judge is unlearned, and that the whole country should disappear. Remember, no country in the world automatically recognises court based judgments from your home country. In fact, most countries think that our judiciary system is politically controlled and nonsensical. Few countries in the world recognises local tax judgments either. Structure yourself to exploit this asset protection mechanism. E.g SMM, Art Corporation
5. Don’t show-off. Don’t flaunt your wealth. If you are doing well, beware, don’t invite a frivolous lawsuit. Don’t volunteer information, don’t flaunt your wealth, don’t talk too much at parties, don’t tell them how smart you are. Zimbabwean entrepreneurs tend to be too flamboyant. One wonders if some of the problems that befell our local banking entrepreneurs had nothing to do with petty jealousies which were aroused by their flamboyancy. If people think that you are rich you will be sued. If you are unwilling to have a modest lifestyle (and many of us are not willing) then keep a low a profile as possible and don’t title your assets directly in your own name. The beauty about being an investor is that you do not have to live up to a certain image. No wonder some of the wealthiest people live simple lives. You would not even tell if you met them.
6. Buy adequate business or malpractice insurance policy. The only reason you want a liability insurance policy, is that they must provide for your defense. Liability insurance policies cover actual losses. If you have an adequate asset protection plan, you may not need a huge insurance policy. Negotiate with the inurers.
7. Never ignore a lawsuit. If you are served legal papers, get good competent advice, and respond. If you have an asset protection plan, or you have adequately planned, you may lose your case, but they may never be able to collect. You can’t lose your assets without you first being sued and they have to first win the lawsuit. Winning and getting the money are two separate issues. I was shocked recently when a friend told me that he had been served some papers which he thought were not justified and he had ignored them. If you ignore a potential lawsuit a default judgement will be made against you. Always respond with an intention to defend.
8. Exercise sexual integrity. Do not be polygamous or involve in extramarital affairs. A lot of this leads to decimation of wealth. Many have died paupers because their mistresses milked them of wealth while the family suffers. The Biblical teaching is clear that sexual promiscuity leads to loss of wealth and virtue. Anecdotal evidence abounds in Zimbabwe about some banking entrepreneurs who could have lost their wealth due to issues emanating from lack of sexual integrity. More importantly avoid divorce. Work at your marriage and preserve it. Divorce destroys assets.
9. Run your business affairs professional and pay your creditors and treat your client with excellence and this limits the potential litigation. Deal with business complaints. Do not ignore them. As a healthcare practitioner I know the importance of running my practice with integrity to and professionalism to avoid malpractice lawsuits.
10. If you run your own business and employ people make sure that you abide by labour laws and avoid unfair labour parctice. Stick to procedural firings. Do not cut corners as labour lawsuits can also decimate your wealth. Simialrly handle your taxes properly with advice as the Tax Authorities are considered supercreditors who can easily wipe your wealth away if you get a judgement against you.