Top Threats to Business Owners in Today's Economy

In an economy like today’s business owners, executives, professionals, and many ordinary families face an increasing risk from creditor liability and lawsuits. Each year theories of liability expand, making it more difficult to protect assets. A downturn in the economy, such as the one in which we now find ourselves, can increase the risk of creditor threats. For many in the business and professional communities, the economy’s current woes provide an incentive for creating a plan to protect the assets they have spent so many years and so much effort creating.

The Top Threats of Liability in Today’s Economy

1. If they have sold or intend to sell a business, and the business does not meet the new owner’s expectations, they may be the subject of a suit by the disgruntled purchaser. The seller of a business typically must sign off on a wide variety of “representations and warranties,” and an unhappy purchaser can often leverage these against the seller, claiming misrepresentations or the use of misleading projections.
2. With a greater risk of business deals falling through, there will also be an increased risk of litigation.
3. If companies do not perform well, shareholder suits can multiply.
4. If the economic downturn severely affects a business’s cash flow, or if a business is forced to liquidate, there may be suits by suppliers and lenders. Plaintiffs in such suits may attempt to “pierce the veil” of the business entity and move against the owners’ personal assets.
5. In a time when many family’s net worth has recently decreased, they feel a greater need to protect the family’s still-existing nest egg from the effects of claims.
6. A person experienced in one business may have investments in unfamiliar business activities. One could find oneself as a general partner in a risky endeavor, the potential liability for which is increased during economic bad times.
7. Business owners often expand their activities to include service on Boards of Directors for corporations and community boards or trusts. Liability insurance is often costly, and deep-pocketed individuals serving in these capacities can often attract lawsuits or claims.
8. Unfortunately, statistics show that economic difficulties can also have collateral effects, such as marriage difficulties, and planning above and beyond a prenuptial agreement may be a consideration.

These concerns are in addition to those always faced by people in the business community, regardless of the state of the economy. As businessmen and women know, in dealing with a third party there is always an inherent financial risk, whether the risk relates to a service provided to the party, a product (or other asset) sold to the party, a disgruntled or injured employee, an unforeseen accident, etc. To protect against such risks, businesses often operate in the form of a corporation or limited liability company, and families and businesses purchase insurance. These forms of asset protection do not, however, fully protect a family’s assets from unforeseen liabilities and uninsured losses. Because of this, many planners reccomend an “integrated estate plan,” which combines traditional estate planning with asset protection planning. The asset protection component of the planning focuses on protecting the personal wealth of the business or professional person and his or her family.

So what “integrated estate planning” arrangement is considered the best to avoid being targeted by plaintiffs and contingency fee lawyers? Competent planning that includes the use of a protective trust is the most effective. What better way to convince the plaintiff’s attorney to just go away (perhaps with a token settlement) than to demonstrate to him or her that even if a judgment is rendered against you, protected assets are not going to be available to satisfy that judgment.

For more information, visit www.dsullivan.com or call (781) 237-2815. You can also subscribe to this blog by clicking subscribe below.