Protect Your Nest Egg
Threats to individual and business wealth arise from a variety of sources. Some claims stem from legitimate and expected contract creditors, such as consumer and bank debt. But, occasionally, unexpected claims arise from guaranties, contingent liabilities, joint and several partnership obligations, and business litigation. Business owners are frequently surprised by the extent of their exposure and the powerful collection tools available to creditors.
A business owner may be blindsided by risks created from a partner or business associate’s financial dealings, the judicial interpretation of a guaranty beyond its intended scope, or simply the considerable amount of damages awarded in business litigation judgments. The corporate laws of many states, including Florida, extend corporate liability to officers and directors under certain circumstances. Shareholders, governmental entities, and business associates are starting to use these claims early in litigation to gain settlement leverage. Some have even been successful in getting judgments that shattered the corporate shield. These cases often entail unpleasantly protracted litigation and can inflict significant economic damage.
Nowadays, one must look beyond the contract creditor and business claimant to the tort claimant as a significant threat. Despite political movements for tort reform, it appears that tort litigation is growing unrestrained. Media headlines are replete with reports about shocking new theories of liability and astronomical damage awards.
Liability insurance used to be the obvious antidote. But, policies are written with more exclusions now than ever. Insurance companies are denying coverage at every opportunity. So, anyone with personal wealth is now more susceptible than ever, irrespective of insurance coverage, to collection on a judgment.
Apart from the potentially disastrous effect of tort, contract, and business liability, business owners and executives are increasingly concerned about regulatory liability spawned in recent years by a variety of federal and state statutes. Many of these laws enable entry of a judgment even though the business and its owner had no knowledge of the matter or ill intent.
Business owners also recognize their potential exposure to other legislative claims. Many a business has fallen victim to a strike suit under the Americans with Disabilities Act and the Family Medical Leave Act. And, the Sarbanes-Oxley Act of 2002, with its increased demands on the accountability of officers and directors of publicly traded companies, sent a shudder through the markets. While motivated by good intentions, these acts are a real problem for many.
Another new concern comes from divorce court, not because divorces are new, but because they have become so prevalent. Judges and legislators are understandably anxious to protect a nonworking spouse. The claims can be extremely distracting for a business owner and, in a closely held company, can severely impact the interests of his business partners.
Fortunately, business owners can take advantage of a variety of wide-reaching asset protection tools. There are four levels of protection:
- The Florida Constitution protects the equity in your qualified primary residence.
- The Florida Statutes provide numerous exemptions. The most powerful are the exemptions for life insurance and annuities. A business owner can use these vehicles to shelter cash on a moment’s notice.
- Florida Common Law. Per the Florida Supreme Court, any assets held jointly with a spouse are exempt as marital property.
- Offshore and out-of-state business entities. These work particularly well, especially the use of LLCs formed in the island nation of Nevis.
A carefully crafted asset protection plan that uses the proper mix of these tools can keep assets available to the business and its owners with minimal risk of collection.