How do you protect your business ideas?

What is the best way to protect your business ideas?

1. Insure yourself
2. Hire a competent Attorney
3. Protect your files
4. Protect your bottom line
5. All of the Above

Start early, keep it simple, and don’t try to hide stuff from your creditors.

There’s a gambling saying that goes something like, “If you want to be a winner, you have to walk away from the table a winner.” One time-honored method of reaching this result is to systematically take your chips off the table as you win them, so that your potential for losses stays small.

Asset protection planning is all about taking chips off the table in good times, so that you still can walk away from the table a winner no matter what happens in bad times. Those who worry the most about asset protection are those who are the most likely to get sued; think obstetricians and, more recently, real estate investors here. But average folks often get caught up in difficult situations, and thus if you have something to protect then the topic of asset protection should at least cross your mind.

Technically, asset protection planning is the debtor’s side of creditor-debtor law. While creditors are concerned about the strategies and techniques of collection, debtors are interested in the strategies and techniques for protecting their most valuable assets from potential creditors.

But in this calculation, it is not just about protecting assets but also about making sure that one does not end up in jail for contempt or bankruptcy fraud for engaging in the process.

Keeping in mind the law school adage that “General rules are generally inapplicable”, the following 10 rules should always be kept in mind when you try to take your chips off the table.

1. Start Planning Before A Claim Arises

Many things you can do will effectively provide asset protection before a claim or liability arises, but few things will afterwards. That’s because what you do after a claim rises could be undone by “fraudulent transfer” law.  Moreover, the point at which a claim arises is earlier than a layman might think—it is, for example, usually much earlier than when a demand letter or a process server shows up at the door.

2. Late Planning Usually Backfires

Asset protection planning after a claim arises is apt to make matters worse; think of it as getting a flu shot while you have the flu, and the shot itself making you even more woozy. It is a common misconception that the only thing a judge can do is to unwind a fraudulent transfer,  leaving a debtor who unsuccessfully tried late planning  no worse off than if he had done nothing. To the contrary, both the debtor and whoever assisted in the fraudulent transfer can become liable for the creditor’s attorney fees, and the debtor can lose the hope of getting a discharge in bankruptcy.

3. Asset Protection Planning Is Not A Substitute For Insurance

Asset protection planning should not be a substitute for liability and professional insurance, but rather should supplement insurance. It is a myth that asset protection plans invariably scare away plaintiffs, and an asset protection plan doesn’t pay legal fees to defend against a lawsuit. Insurance also supplements asset protection planning, since it can help a debtor survive a claim a fraudulent transfer claim. If you get sued, let the insurance company pay to defend it and pay to settle it — that’s what you’re paying the premiums for.

4. Personal Assets Are For Trusts; BusinessAssets Are For Business Entities

Business entities such as corporations, partnerships and LLCs are meant to be vehicles for commercial operations, not to act as personal piggybanks. When personal assets are placed into a business entity, the potential for the entity to be pierced by a creditor on some theory or another, such as alter ego, increases exponentially. The place to put personal assets is in a trust.  There is a long and solid body of law that protects trust assets—when the trust is properly drafted and funded. And please don’t name the entity the “Family” Partnership or LLC, unless your family is famous for making sausage or some such.

5. Too Much Control Is A Bad Thing

Asset protection planning attempts to reach a balance between giving the client sufficient control so that the assets do not disappear, but at the same time not so much control that a creditor can successfully argue that the debtor and the asset protection structure are effectively one-and-the-same and thus should be disregarded on alter ego or some similar theory.

Source: Forbes Magazine, July 13, 2011