Asset protection in California is a great tool – but it’s a serious tool, and should not be used in a cavalier or careless manner. Those who try to use asset protection after a judgment or divorce papers have already been served are walking a fine line… a line that could be deemed fraud. Once this line has been crossed, the consequences are severe and things will not pan out in your favor.

The proper and responsible thing to do is sit down with a California asset protection attorney BEFORE you experience a life change that could affect your assets. Speak to your attorney about protecting what is rightfully yours before a divorce, before going into a new business , or before entering into any agreement that will mean you owe money to a creditor, including purchasing a new home or car.

So what’s the final word? Use asset protection a) before any major life changes, and b) with the help and guidance of a California asset protection lawyer.

If you have any questions or any uncertainties regarding when you should use asset protection, contact your Newport Beach asset protection lawyer today.

In many cases, a great percentage of a person’s liquid assets may be held in a 401(k), Roth IRA, IRA, or other type of deferred compensation or retirement plan. Many of these plans will keep your assets safe in the event of a lawsuit, but again, the only way to be 100 percent sure of this is to discuss the parameters of the plan with your Orange County asset protection attorney.

While deferred compensation and retirement plans may keep your money safe in certain situations, laws change, and you must have a firewall to protect what is rightfully yours. That’s why you must have proper liability and/or malpractice insurance, depending on your profession. Protecting your liquid and hard assets with liability insurance is a way to create some peace of mind. Keeping your money in retirement funds will create more peace of mind. But if you’re the kind of person who wants to make sure that all your bases are covered, talk to your Orange County estate planning lawyer about the options you have for creating trusts for your retirement plan(s), your home, and the various soft and hard assets you use to run your business. Separating assets by way of trusts or by including them in different LLCs, you can avoid a lawsuit against your whole estate or whole worth.

Discuss the options you have for protecting your money: Whether it’s retirement plans or liability insurance, trusts, or a combination of all three, you can rest easy knowing that a highly experienced lawyer has reviewed your assets and can tailor a plan to meet your specific estate planning needs.

One of the many things successful small business owners overlook is the proper separation of assets, including real property, liquid assets, and intellectual property. Without California asset protection, a judgment brought against your business or you as an individual could cost everything you have earned. The way to avoid “getting taken to the cleaners” by a lawsuit or other claim is to protect what you have in separate trusts, companies, and if married, through marital property planning.

Depending on how much you own and how large your business is, you may need to set up multiple California LLCs and trusts to shelter everything from your home to your business equipment, any other real property, and any liquid assets. The way this works best is by separating what you own as much as possible so that if a judgment is brought against one entity in your possession, it cannot go after the assets or monies that are held by other entities you possess.

For example, if someone sues your company by name, they can only take what is owned by that company, and not your personal assets. If the company is an LLC and all it owns is the equipment used to run, the judgment can only go after those assets. Conversely, if someone were to sue you as an individual, they would not be able to go after the assets held by your company, or those held in any trust that is not in your name, including an offshore trust held in the name of a trustee.

If you are a small business owner, consider estate planning and asset protection in California before something undesirable occurs. Jeff Matsen can design a California asset protection plan for the protection of all you’ve worked so hard to attain. Start today by contacting Jeff Matsen, the Los Angeles and Newport Beach wealth management expert awarded a perfect score from the The Nationally Renowned Attorney Rating Service.

Peter was the President of a small manufacturing company and acted as the General Manager of its operations.  His wife, Helen, was the Executive Vice President and was responsible for all of the Company’s financial and administrative matters.  Peter had just designed a new mixing machine that was used by the Company to produce low grade urethane foam and had been training plant personnel on the use of the machine.  On one occasion, Peter was operating the machine and his sweater sleeve caught on a protruding bolt and his arm was pulled into the machine.  As a result, Peter suffered serious injury including a fractured arm, soft tissue lacerations and second and third degree burns.  The injury required surgery and the installation of a metal plate in his forearm and it was a likely that Peter would suffer some permanent loss of some use of his arm.

Peter and his corporate counsel then consulted me about the possibility of Peter putting in a claim against the Corporation for damages.  The corporate counsel and I recommended that Peter retain a personal injury lawyer to handle his grievance.  The personal injury lawyer and the corporate counsel negotiated a six figure settlement, which at the time (1977), was a very substantial amount.  I recommended that the Company deduct the settlement payment to Peter as a legitimate income tax expense under Section 162(a) of the Internal Revenue Code and that Peter exclude the receipt of the payment on his income tax return under Section 104(a)(2) as compensation received on account of personal injuries.

The IRS subsequently audited both the Company and Peter and Helen’s personal Tax Returns.  They argued that the payment from the Company to Peter was a disguised dividend and, therefore, not deductible by the Company and not excludable from Peter’s income.  Peter and the Company vigorously objected to the IRS position and they hired me to fight the battle for them in the US Tax Court.

Of course, the whole position of the IRS was based on the fact that the transaction in question was between a closely held corporation and its President who along with his wife, Helen, were the controlling shareholders.  Accordingly, under these facts, Peter and the Company were, obviously, not dealing at arm’s length.  This engendered a greater burden on Peter and the Company to show the legitimacy of the transaction.  I argued that the Court should compare the actions of Peter and the Company with what would have occurred if the transaction had been between parties who were dealing at arm’s length. Corporations, by definition are independent entities, separate from the owners yet the IRS was treating them as one in the same.   If Peter had been an employee of the Company who was not a controlling shareholder and had suffered this injury, he more than likely would have hired an independent attorney to pursue his claim, just as we had recommended that Peter do.  The Company’s attorney and Peter’s personal injury attorney negotiated a reasonable settlement just as probably would have happened had Peter been a typical employee with the Company without any ownership interest.

In closing arguments to the Court, I stated that the decision should be based on whether there was a reasonable basis independent of tax considerations for the Company to deduct the settlement payment and for Peter to exclude it as compensation for personal injuries.  The fact that Peter was a controlling shareholder of the Corporation should not disqualify him from the reasonableness of receiving a tax free settlement under the law which allows for the Corporation to deduct such settlement payment.

During the final arguments of the case, the IRS attorney finished his closing remarks by stating that the whole transaction was just a manipulated tax saving scheme.  My retort was that the obvious inference of the IRS argument was that Peter intentionally stuck his arm in the machine and suffered the grievous injury on purpose.  I told the Judge that this would truly be “tax planning with a vengeance”.  The Judge acknowledged the absurdity of this notion with a smile.

In any event, the Judge ruled in our favor and Peter and his Company were able to receive a huge income tax benefit.  Of course, the moral of the story is that Peter and his Company had the proper tax and legal advice which included a very practical and well thought out plan:  1) the hiring of an independent personal injury lawyer for Peter; 2) the representation of the client by Peter’s personal injury lawyer which was backed up by medical reports; 3) the negotiation by the corporate attorney, reviewing the claim and the medical reports and 4) the action by the Board of Directors of the Company to give effect to the settlement proposal.

Of course, the preparation of a compelling brief to the Tax Court along with a winning trial presentation and closing argument were critical.  There is, obviously, no substitute for creative and well thought out tax strategy followed by the implementation of a very specific and practical plan.

If you would like to read more, the citation for the case is Maxwell v Commissioner, United States Tax Court, 9T.C.107 (1990).  As an aside, a few weeks after the issuance of the written of opinion by the Tax Court, Time Magazine ran a short article on the case with the implication that the taxpayer had really gotten away with an unbelievable tax dodge and huge tax benefits.  I wrote a letter to Editor in reply to the article, more or less, summarizing my closing arguments to the Judge and pointing out that if this really was a tax dodge, it carried a very high price of injury and disability to Peter (my letter was never published).  As another aside, the IRS counsel on the case, who is currently in private practice, refers me clients.

Everyone, it seems, is talking about money. You know: the filthy lucre, the simoleons, the coin. But it wasn’t always so. There was a time when talking about money was as embarrassing and fraught with peril as talking about sex or religion. In more refined circles, it was something that simply wasn’t done. O tempora, O mores! How times have changed. Why? Linton Weeks of NPR cites the 60s counter-culture revolution, Louis Rukeyser, USA Today, the new affluence, Congress, and the 401(k). Take your pick. But feel free to talk about the you-know-what.

The answer to that is yes and no. It is the very act of doing things your way that has made your business as unique and successful as it is; you don’t want to change that now. Not to mention, you want to make sure that your interests are met when a deal is finally brokered. That being said, there are some things you can do—and people you can talk to—that will make the process of selling your business a lot quicker, a lot smoother, and a lot more lucrative.

This article from US News and World Report shares 10 Key Moves When Selling Your Business. Two of the ten moves mention getting the help of your accountant and the help of a professional broker. To this we would add getting the help of your attorney. Numbers 5 and 9 are going to be essential when it comes down to solidifying any deal, and our firm can help ensure that all of your legal and regulatory affairs are in order.

But what about the down market? Perhaps you’d like to sell but think it just isn’t an option while this financial fiasco is still going on. Not so. According to Loraine MacDonald in her article for Entrepreneur.com an economic downturn may in fact be a lucrative time to sell if, as she puts it, you have the right “three stars aligned” at the same time.

Whether you’re thinking about selling right now or much later, it’s never a bad idea to do the research and put your business affairs in order. As MacDonald mentions in her article, there are any number of unforeseen events that could end in the sale of your business at an unexpected time. The more prepared you are the best chance you have of getting the best buyer for your business at the best price—and of course, doing it your way.