Asset Protection for Professionals and Business Owners in Florida
Asset protection planning involves making prudent decisions today to protect yourself, your business, and your hard-earned assets from loss due to lawsuits, creditors or bankruptcies. This type of legal planning is especially prudent for professionals and business owners, whose personal assets could be at risk due the nature of their employment.
Statistically and anecdotally, we all know that the number of divorces, lawsuits and bankruptcies is staggering. While no one believes lightning will strike them, wealth created through a lifetime of work, saving and investing can be lost overnight if these forms of man-made lightning do strike. To protect your assets from such disaster, proper risk management strategies should be given careful consideration. These strategies include exempting your assets from the claims of creditors, limiting your liability through legal entities, and transferring your risk through insurance.
Exempting Assets in Florida
State and federal laws exempt some of your assets from the claims of creditors. Click here to download a listing of Florida's exempt assets; note that while some states allow you to choose either the state or federal exemptions, in Florida you must use the state exemptions and federal bankruptcy exemptions are not available.
Once you have identified the protected asset classes available to you under applicable law, it may be prudent to maximize your protection by converting non-exempt assets into exempt assets.
A Florida Statutory Exemption law sets out certain property, income or assets as exempt from collection by creditors. These include salary or wages of head-of-household, cash value and insurance policies and all annuities while resident is alive (for the owner insured), Pension and Profit Sharing Plans, IRAs, disability income, automobile exemptions up to $1,000 of equity and prepaid college plans. Also exempt are bank accounts for a child under the Florida Uniform Transfer to Minors Act and Social Security payments for the most part.
Florida Statute §732.402 sets out property that is exempt to a decedent’s surviving spouse or children. These exemptions are extensive and include and are not limited to household furniture and furnishings up to a net value of $20,000 as of the date of death, two motor vehicles if they were used by decedent’s immediate family, qualified tuition programs, death benefits to teachers and school administrators and the protected homestead.
Limiting Liability for Professionals & Business Owners
Many entrepreneurs operate their businesses as sole proprietors rather than through a legal entity, such as a Corporation or a Limited Liability Company. Whether their business is home-based or in the Fortune 500, these business owners are attracted by the informality of sole proprietorship. They also do not want to incur legal fees to create and maintain a legal entity.
However, in addition to other advantages, conducting business through a legal entity may offer substantial risk management benefits.
While lawsuits brought against a sole proprietorship are really lawsuits against the owner's personal assets, lawsuits against a properly created and maintained legal entity are really lawsuits against the entity's assets. Nevertheless, the selection of an appropriate legal entity is critical for managing your risk.
Transferring Risk with Insurance
When was the last time you reviewed the details of your liability insurance program with your insurance professionals? Are your policies current? Are the coverage limits adequate and are the deductibles reasonable? Have you scrutinized the policies for loopholes? Remember: the fundamental philosophy of any insurance coverage is to pay a premium you can afford to transfer a risk you cannot afford. Take time to understand both the risks you have retained and the risks you have transferred.