Part Four

Limit Your Business Risks

If you own of a small business, or are self-employed, then it’s highly recommended that you insure and incorporate. For example, if you part-time delivery man hits a pedestrian, then a corporate shell, such as a limited liability company (LLC), provides an added layer of protection for your personal assets. If you own several rental properties, then holding each in a separate LLC should be taken into consideration. One word of warning: A shell won't protect you from liability if you yourself are negligent; for example, you’re the architect of a building that collapses. That's why both error and omission insurance is a good idea even it costs thousands. (Check your professional association; some offer attractive group rates.)

If you have the occasion to conduct business from your home, then you should get a business "endorsement" for your homeowner's and umbrella policies. Otherwise, should you have either a delivery man or a client slip and fall on your steps, your insurer will probably tell you that you aren't covered.

Finally, keep your business and personal debts separate: Never use your "small business" credit card for personal expenses. Furthermore, if you tap into your home equity to fund your business, always make sure that you keep records showing where the money went. The reason for this is that the provision in the new law denying a Chapter 7 "fresh start" to families with above-median income seems to be applicable only if what you owe is primarily "consumer debt." If your debts stem mainly from business borrowings or a malpractice award, you should be able to use Chapter 7. Creditors may fight this line of reasoning, but it's worth a shot.

If you would like more information regarding asset protection, trusts, family limited partnerships or the subject of this article please call or email our office.