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Protect Y our Assets

In taking advantage of exemptions, there are two goals:

1. Identify and retain ownership of assets that qualify for an exemption .
A classic example is claiming the homestead exemption by keeping
your home in your personal name.

2. Convert assets from those that do not qualify for an exemption into assets that
do . A common example is to liquidate nonexempt assets and invest that
money in a home. This is more complex, and you must be careful to
avoid any actions that can be considered fraudulent. We will discuss
fraudulent transfer later in the chapter. Caution : The rules on such
transfers or conversions of assets vary greatly from state to state, so
always consult with an attorney in considering this strategy.

Now let’s take a look at some of the specific components. Before deciding

which type of business entity is right for you, understand how these different
types work:

• Sole Proprietorship
• General Partnership
• C Corporation
• S Corporation
• Limited Liability Company
• Limited Partnership

Let’s look at each in turn.
A sole proprietorship is the most popular type of business structure, because
they are simple and inexpensive to set up and maintain, and do not require a
business owner to comply with statutory requirements. The business owner
does not have to form the entity with the Secretary of State, or file any annual

reports. Unless a business is specifically formed as a distinct legal entity, such

as a corporation or a limited liability company, your business is automatically
a sole proprietorship by default.

While this type of option may seem desirable at first glance, I never recom-
mend this type of business entity. The business owner is personally responsible
for any debts or liabilities of the business, which means that you have no protec-
tion from creditors seeking assets. Sole proprietorships are just too risky.
A general partnership is a sole proprietorship with more than one owner,
with each owner sharing in the management of the partnership. Like a sole
proprietorship, any creditors of the general partnership can seek assets from
any and all individual owners.

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