Providing peace of mind through skilled guidance, compassion & simplicity

Asset Protection Planning for Business Owners in Orlando, FL

Asset protection planning involves making prudent decisions today to protect yourself, your business, and your hard-earned assets from loss due to lawsuits, creditors or bankruptcies. This type of legal planning is especially prudent for professionals and business owners, whose personal assets could be at risk due the nature of their employment.

Statistically and anecdotally, we all know that the number of divorces, lawsuits and bankruptcies is staggering. While no one believes lightning will strike them, wealth created through a lifetime of work, saving and investing can be lost overnight if these forms of “lightning” do strike. To protect your assets from such disaster, proper risk management strategies should be given careful consideration. Asset protection planning includes exempting your assets from the claims of creditors, limiting your liability through legal entities, and transferring your risk through insurance.

Limiting Liability for Professionals & Business Owners

Many entrepreneurs operate their businesses as sole proprietors rather than through a legal entity, such as a Corporation or a Limited Liability Company. Whether their business is home-based or in the Fortune 500, these business owners are attracted by the informality of sole proprietorship. They also do not want to incur legal fees to create and maintain a legal entity. However, in addition to other advantages, conducting business through a legal entity may offer substantial risk management benefits.

While lawsuits brought against a sole proprietorship are really lawsuits against the owner’s personal assets, lawsuits against a properly created and maintained legal entity are really lawsuits against the entity’s assets. Nevertheless, the selection of an appropriate legal entity is critical for managing your risk.

Transferring Risk with Insurance

When was the last time you reviewed the details of your liability insurance program with your insurance professionals? Are your policies current? Are the coverage limits adequate and are the deductibles reasonable? Have you scrutinized the policies for loopholes? Remember: the fundamental philosophy of any insurance coverage is to pay a premium you can afford to transfer a risk you cannot afford. With asset protection planning, you take time to understand both the risks you have retained and the risks you have transferred.

Marital Property/ Pre-Nuptial/Domestic Partner Agreements

Whether you are entering into marriage for the first time or after a previous marriage has ended, a pre-marital agreement can offer protection for both you and your future spouse. Often people wish to protect their assets from uncertainty or possibly preserve them for children from a prior relationship. Whatever the reason, to have an effective agreement both parties must understand their rights under Florida law, and what rights they may be waiving. Linda will review your circumstances and assist with the preparation and/or review of a Property Agreement specific to your situation.

Tips To Avoid A Lawsuit

Perhaps these tips bring to mind the oft-quoted adage, it’s not paranoia if they really are out to get you. There are plenty of greed-blinded, entitlement-minded predators out there who are all too willing to separate you from your hard-earned money. Following are some simple tips to help you avoid a lawsuit.

Don’t flaunt your wealth. Don’t practice a lifestyle that advertises you have a lot of disposable income. Even if you don’t consider yourself wealthy, if you’re driving a top-of-the-line luxury sedan and openly discussing lavish vacations, plenty of other people will assume that you are and will see you as a target for a lawsuit.

Draw up a pre-nuptial agreement before marrying. It may not be romantic advice, but from a legal standpoint it’s definitely wise. Being served for divorce is the most common lawsuit.

Identify and correct any existing personal or business liabilities. Don’t rely on oral promises and oral agreements which often result in confusion and misrepresentation. If you enter into written business agreements, make sure the agreement is reviewed by a lawyer in advance. Use well-drafted and thought-out planning before the fact, and make sure you have planned for dispute resolution in the most efficient manner possible. Avoid getting involved in business or financial relationships with people you do not trust or people who seem adversarial in nature. A majority of businesses fail in the first three years, and these often turn from high hopes to high drama as partners fight over the remaining assets. Good planning before there are problems can limit future potential liability.

Those in high-risk professions should recognize their potential exposure. For those individuals with heightened exposure to lawsuits because they are involved in business or high-risk professions, a consultation with a Florida asset protection attorney will acquaint them with legal asset protection tools which can be incorporated into their business plan and family estate plan.

Know the employment laws backward, forward and inside out. Few areas are as treacherous as those involving the employment of other people. Disgruntled ex-employees can fairly easily exaggerate or even fabricate incidents that “prove” they were victims of harassment or discrimination. Know how to legally interview, hire, and fire employees, and make sure those working for you know as well.

Don’t play favorites with employees. You must treat everyone equally. Think twice before you give an employee a special break or extra time off for any reason. This also applies to being too harsh on one employee and not others.

Be scrupulously careful about doing anything that might be construed as sexual discrimination. Here are some disturbing statistics: according to Jury Verdict Research, 38 percent of all verdicts between 1996 and 2002 involved claims of sexual discrimination. Equally sobering is the report from Jury Verdict Research that 67 percent of sexual discrimination court cases end with the plaintiff winning. And in 2000, the mean award for sexual discrimination was a hefty $529,373.

Understand vicarious liabilities. Employers can be held accountable for the actions of their employees sometimes even for actions the employers specifically instructed the employees not to do. Train them effectively. If you have children, you have a whole other set of potential liabilities. Parents are often held accountable for the actions of their children (e.g., auto accidents). If you provide family members or others with automobiles, equipment or dangerous instruments you could be held liable for their negligent or intentional acts.

Increase your home and automobile insurance coverage to the highest dollar amount.Maintain comprehensive insurance covering your house and all vehicles owned in your name regardless of who drives your cars. Your business or medical practice isn’t the only place where you are at risk for a lawsuit, our nation’s roads are fast becoming a highway to wealth. Make sure you are insured to adequately cover medical expenses should you, your spouse or your children be involved in a lawsuit.

Implement binding Arbitration/Alternative Dispute Resolution agreements with all staff and everyone with whom you do business. The American Arbitration Association estimates that 80 to 90 percent of the disputes it mediates and/or arbitrates are quickly and cost-effectively resolved without litigation. It’s just good business sense to legally require that any grievances between you, your patients, clients, or even your vendors be settled out of court in arbitration.

Adequately warn customers about potentially dangerous situations. Personal injury lawsuits are big business. Putting up signs like “We use microwave ovens” or “Caution: wet floor” may seem simple, but they can go a long way toward preventing lawsuits.

Treat your patients, clients and customers in an exemplary manner. It may sound naïve or simplistic, but it’s true: being nice usually pays off. Most of us simply don’t like to sue people who we think are doing a great job or are nice. On the other hand, we have no problem suing those who “didn’t care about us in the first place.”

Fraudulent Conveyances in Asset Protection Planning

In most cases, asset protection planning involves re-titling or transferring property or converting assets that are not exempt from claims of creditors to assets that are exempt from claims of creditors. Every asset protection plan should begin first with consideration of the applicable fraudulent conveyance statute(s) and whether or not planned transactions could constitute fraudulent transfers or fraudulent conversions. Each transfer or conversion of assets must be analyzed within the context of the applicable fraudulent conveyance statute. Consideration of the operation and application of the fraudulent transfer statutes is a necessary prerequisite for the evaluation and selection of proper asset protection techniques available in a particular set of circumstances.

Fraudulent conveyances in Florida are not prohibited and are not illegal, however Florida Statues do provide that a creditor can sue to overturn a transfer or conversion for up to four years after a conveyance was made or obligation incurred. After four years, asset protection transfers become immune from fraudulent conveyance suits.

Under Florida Statutes what are fraudulent transfers and conversions?

A fraudulent transfer is a debtor’s transfer of legal title to his real or personal property to a third party with the intent to hinder, delay or defraud a present or future creditor. A fraudulent conversion is a debtor’s conversion of non-exempt real or personal property to a different type of property, still owned by the debtor, which new property is exempt or immune from creditor attack.


What is the consequence of making a fraudulent transfer or conversion?

Florida Statutes provide that fraudulent transfers or conversions may be undone and reversed by a court, effectively placing the asset back, from where it was transferred, where the property becomes susceptible to the creditor collection process.

The Statutes provide several equitable remedies to assist the creditor’s collection of these converted assets including injunctions against further transfers, appointment of a receiver to take charge of the assets or imposition of a constructive trust.

A creditor alleging fraudulent conveyance may sue not only the debtor transferor but also the transferee who received the property in order to undo the transfer.

Fraudulent conveyances are not prohibited and are not illegal. The subject statutes do not provide for awards of additional damages against the debtor or impose criminal fines or penalties.

What makes a transfer or conversion a fraud against present creditors?

(1) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:

(a) With actual intent to hinder, delay, or defraud any creditor of the debtor; or

(b) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:

1. Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or

2. Intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due.

(2) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.

(3) A transfer made by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent.

To ascertain the debtor’s “actual intent” of a property transfer courts look to factors, “badges of fraud”, which are often indicative of intent to avoid creditor claims. The Court will consider whether:

  • any particular transfer was made to a debtor’s family member;
  • the debtor retained effective control or use of the property transferred;
  • a transfer was concealed;
  • the debtor had been sued or threatened with suit;
  • transfer was of substantially all the debtor’s assets;
  • debtor absconded;
  • debtor removed or concealed assets;
  • value of the consideration received was reasonably adequate;
  • transfer occurred shortly before or shortly after a substantial debt was incurred; and
  • whether the transfer rendered the debtor insolvent.

A creditor, to establish actual intent, must provide evidence that at least some of the “badges of fraud” are present. Evidence of only one badge of fraud usually is insufficient to establish that a transfer was made with actual fraudulent intent.

What is the defense against fraudulent conveyance allegations?

Just because a creditor believes a conveyance was intended to defraud creditors does not mean a court will set aside the conveyance. Often, a debtor can show many legitimate reasons for conveying assets other than avoiding creditors.


How does the fraudulent conveyance issue impact asset protection planning?

People have a constitutional right to control or transfer their property until such time as a judgment creditor obtains a legal interest in the property.

This is why the applicable statutes do not prohibit or make illegal fraudulent conveyances, however the following should be considered.

  • The need for a reasonably equivalent value to be received by the transferor in return for the transfer of any property interest, or the incurring of any obligation;
  • Transferor is solvent, and will not be rendered insolvent by the proposed transfer;
  • The “badges of fraud” should be carefully reviewed to determine if any are present, and if so, what remedial action can be taken by the transferor to negate, or at least minimize, the effect of those that are present at the time of the transfer; and
  • When acquiring assets that are statutorily exempt from the claims of creditors through the transfer of assets that are not statutorily exempt, care should be taken to analyze the implications of the fraudulent conveyance statute(s), the transferor’s actual intent, and whether the transferor is solvent at the time of the transfer.

The possibility of a creditor’s allegations of fraudulent conveyance should not deter aggressive asset protection planning prior to the time a judgment is entered by a court. A court cannot increase the amount of the judgment already awarded against a debtor because of a debtor’s fraudulent conveyance, therefore there is little to lose by implementing an asset protection plan even if some planning might be subsequently challenged or even reversed.


Debtor Liability for Asset Protection Planning

Florida courts, as well as some federal courts in other states, have held that a fraudulent conveyance to avoid creditors’ claims is not tortuous fraud and is not criminal fraud. As a result, a creditor cannot also charge you with the crime of fraud and cannot seek additional civil damages based on common law theories of fraud, deceit, or misrepresentation. In almost all cases, even if part of your asset protection planning is successfully challenged as a fraudulent conveyance, a court will only put you back in essentially the same legal situation you were in before your asset protection plan was implemented.

People have a constitutional right to control or transfer their property until such time as a judgment creditor obtains a legal interest in the property. While any asset protection conveyance can be challenged as “fraudulent” for up to four years, just the possibility of a creditor’s allegations of fraudulent conveyance should not deter aggressive asset protection planning prior to time a judgment is entered by a court.