Protecting your Business from Creditors – Four Things to Consider

If you are a business owner, you have likely worked long and hard to achieve your goals and increase the asset value of your estate. It would be a shame if creditors were able to reach your assets before you are able to transfer that wealth to a younger generation. Fortunately, there are several options to consider that may provide asset protection.

  1. Timing. First, understand that an asset protection plan is necessary to insulate your estate from the claims of creditors and lawsuits. No one is immune.  Also, you must add this layer of protection before a claim arises. Assets transferred after a claim arises will not be protected; therefore, timing is important.
  2. Entity Form. Consider the form of business ownership you currently have. We have other blogs on this topic, but generally, you may consider a C corporation to provide liability protection; you may consider an S corporation for both liability protection and pass-through taxation benefits, as long as corporate formalities are followed; or you may consider an LLC, which operates similarly to an S corporation, but without some of the extra formalities. With an LLC, you get both liability protection and the pass-through tax benefits.
  3. Trust. Another method for protecting assets from creditors is to establish a trust and then transfer assets to it. The various types of trusts are too long to describe here, but they are generally divided into revocable and irrevocable. As the names imply, revocable trusts permit you to make changes, whereas irrevocable trusts generally require you to cede control.
  4. Family Limited Partnership. You may also consider a family limited partnership (FLP). An FLP may be a viable approach for providing protection against creditors as well as other tax benefits. With an FLP, a business owner transfers assets to other family members – the limited partners – without relinquishing full control of the operation. Subsequent earnings are then taxed to the other family members.

For assistance with protecting your wealth, or with other legal matters associated with Business or Estate Planning, please contact Fournier Legal Services at 860.670.3535 or