Even if you operate your business in an honest way, someone might find a reason to file a lawsuit against you, in a Washington courtroom. There’s also the possibility that you as the business owner are held liable for an employee’s mistake and any associated damages. There are several ways to protect your business and personal assets to minimize losses in the case of a lawsuit.
Structure your business as an LLC
Which company formation you choose influences how much protection you can get from business litigation. An LLC prevents creditors from acquiring your personal assets. They would only be able to seek repayment from your business assets.
You shouldn’t commingle personal assets with business assets. It could cause your personal property to turn into business property. You should also keep dangerous assets separate from all other types of property and investments, including other dangerous assets. Rental real estate, motor vehicles, tools and equipment are examples of dangerous assets. Safe assets are bank accounts, stocks and bonds.
Set up an irrevocable trust
Irrevocable trusts are usually safe from creditors and lawsuits. If you choose this strategy, be aware that you can’t withdraw assets from the trust or revoke it. Be wary about setting up this type of trust when you are in an active lawsuit as well. An exception to irrevocable trusts is when the grantor intentionally sets it up to avoid paying debts.
Store some of your assets in offshore accounts
Offshore accounts are legitimate protection strategies as long as you don’t use them for tax evasion or any other illegal activities. Additional potential benefits of offshore accounts are a hedge against inflation, protection against currency fluctuations and diversification of your portfolio.
Asset protection strategies are legal, but you must remember that your intentions still need to be honest. It would be illegal to try to avoid paying back debts or to evade taxes.