As business owners and professionals, we work hard for our money. The last thing we ever want to experience is losing our hard-earned living, especially when it is avoidable. With proper planning, you can protect your assets from creditors, bankruptcy and lawsuits.
Start with a Team
Your financial adviser can organize the efforts of your financial team, but it is essential that your team also includes an attorney and CPA. Always consult with your attorney regarding the necessary steps and timing for your personal asset protection. Attorneys can set up special trusts to protect assets from creditors, while CPAs can set up ”‘accounts receivable“ in a special way to be safe from creditors and your financial adviser can help strategize retirement and education planning to maximize your protection. A great team is the foundation for an effective and legally sound protection strategy.
Residences & Retirement Accounts
As a Florida resident, your primary residence, and all the equity in it, is protected from bankruptcy, lawsuits and creditors. This is unique to Floridians. There is a two-year waiting period for bankruptcy, and a residence must be a half-acre or less within a municipality and less than 160 acres outside a municipality.
For entrepreneurs and business owners, this protection is important to remember. I have seen entrepreneurs with troubled businesses take out a line of credit or a home equity loan in order to put the money into their businesses in an attempt to keep the business going. In these situations, if the business fails, all of the money that could have been saved from bankruptcy is now gone. It is ideal to leave the equity in your home alone unless you are confident you can get it back into the home to keep it as a protected asset. This goes for qualified retirement plans as well, such as your 401(k). Business owners will sometimes borrow from these protected accounts for business purposes, and then when the business goes under, they have no retirement plan left since it was used as a loan. Borrowing from your retirement plan can be a great tool of last resort but only if you are confident you can pay back the loan to yourself.
If a business is going down the wrong road, try to keep your home equity or retirement plan out of the business. If you have to declare bankruptcy, you can go through that process and come out of it with a house full of equity and retirement plan full of cash so you are not starting over! These assets are safe from lawsuits as well.
Tenants by the Entirety
You may have joint bank or investments accounts, but how are they set up? If you establish “tenants by the entirety,” those assets are much safer than other joint titles. It is an easy and free way to put a little extra protection in place.
As an example, if I have an account titled WJ and Stephanie Rossi TBE (tenants by the entirety) and I cause a car accident, the assets in the TBE typically are not exposed. Only if both of us are named in a lawsuit are they exposed. If only Stephanie or only WJ is sued, assets in TBE accounts are safe. In most other joint titled accounts, half or all the assets may be exposed to creditors and lawsuits.
Cash Value & College Savings
Cash value in life insurance or annuities is fully sheltered from creditors. This protection is afforded in Florida specifically. All of your cash value in a life insurance policy is free from the claims of creditors as well as money in any type of annuity. Lastly, some college savings plans such as 529 plans are protected from creditors and lawsuits. Most states have their own 529 college savings plans, but a few states offer asset protection. If you are saving for your children’s college, take advantage of these opportunities to protect your investments in those accounts.
Hopefully, you will never need to worry about your assets becoming part of a lawsuit or bankruptcy hearing. However, it is worth knowing what is protected, what is exposed and what you can do to maximize the safety of your assets should the unexpected occur.
WJ offers securities through Valmark Securities, Inc. (Member of FINRA/SIPC). He also offers advisory Services through Koss Olinger Consulting, LLC, an SEC Registered Investment Advisor. Valmark Securities, Inc. is separate from Koss Olinger Consulting. Koss Olinger is located at 2700-A NW 43rd Street, Gainesville, FL 32606. The material contained in the herein is for informational purposes only and is not intended to provide specific advice or recommendations for any individual nor does it take into account the particular investment objectives, financial situation or needs of individual investors. The information provided has been derived from sources believed to be reliable, but is not guaranteed as to accuracy and does not purport to be a complete analysis of the material discussed, nor does it constitute an offer or a solicitation of an offer to buy any securities, products or services mentioned. The opinions expressed do not necessarily reflect those of author and are subject to change without notice.
Bio: WJ Rossi is a partner with Koss Olinger, a Gainesville-based wealth management firm that has been helping business owners succeed for nearly 50 years. WJ sits on Koss Olinger’s Investment Advisory Committee and is key in the firm’s investment management, estate planning and income distribution strategies. He can be reached at [email protected] or 352-373-3337.