There is no fool proof way but a trust could provide you with the most protection for personal protection while your business can shield you by incorporating. A creditor could still attach to payments you receive personally but there is no such thing as judgment proof unless you have no assets.
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As mentioned, you can transfer property to a trust and protect your business by incorporating. Also thought I would mention that tort claims such as negligence are bankruptcy proof as well. A plaintiff can always try to claim your transfer of property to a trust was fraud, and can also seek to remove the safeguard of incorporation under certain circumstances. You're probably going to have to fight off the potential lawsuit the best you can.
Insurance and careful adherence to the corporate formalities of your S-corp, so that you always keep your personal actions separate from your corporate ones, are the best ways to shield your individual money. You may also want to invest in a management labor lawyer to make sure your employees have carefully drawn written contracts and your company has good written policies that it can be used to defend against claims about your employees.
But as my colleagues have mentioned, there's never a guarantee that you won't be sued personally. All you can do is minimize your risk that a claim will happen at all, and that if one does happen, that it doesn't involve you personally.
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The fact that a corporation is an S and passes through taxation to the individual owners does not mean that for liability issues or contract issues the corporation will be ignored and your personal assets at risk.
I most agree with Ms. Koslyn below.
I also have some different advice for my clients: keep it simple. All these complex offshore and/or multilevel solutions create so many potenital problems and attract so much IRS attention that sometimes there are counterproductive.
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Best business practice, accurate accounting, updated employee policies and well-crafted employee handbook and an extensive insurance coverage are all parts of an effective asset protection strategy.
However, doing business equals liabilities, and with a considerable personal net worth, you may always be the target of a (frivolous) lawsuit. In my opinion, a sound asset protection plan should make you and your personal assets a very unattractive target for “first sue, then ask” attorneys who work on contingency fee bases. It should be tax neutral (and thus not raise red flags with the IRS) and not compromise ownership or control. Asset protection is not about hiding your assets from legitimate and existing creditors or the IRS. It is about leveling the playing field in an environment where everybody can sue whoever for whatever reason.
Depending on the value of your business, the revenue it generates and your total personal net worth (bank and brokerage accounts, primary residence, other investments) you may want to consider a domestic legal tool that is specifically designed for asset protection purposes: a Family Limited Partnership filed in a state with strong charging order rules such as AZ.
In my opinion, with a total net worth that is above the 500k benchmark, your asset protection plan should include an exit strategy that, if necessary, allows you to take (the ownership) of your assets out of US courts. If properly and timely set up, this structure avoids fraudulent conveyance issues, does not raise red flags with the IRS nor compromises ownership or control.
You want to schedule a consultation with an attorney that has proven expertise in the area of asset protection planning.
Douglass Lodmell is the nations #1 Asset Protection attorney and has clients in all 50 states, protecting over $4 Billion in client assets. Answers given by him in this forum do not establish an attorney-client relation. He advises to seek a specialized attorney in the area of your interest for legal representation.