Protect your Personal Assets from Business Debts
Last month I had the pleasure of chairing and exhibiting at the Charlotte County Chamber of Commerce’s “Hottest Business Day in Paradise” Business Expo held at the Charlotte Harbor Event and Conference Center. It was a great event where 105 Chamber member businesses had the opportunity to network with Chamber members and hundreds of members of the public. As part of the Expo, the Chamber presented a program during the course of the event that presented seven experts, giving seven tips, in seven minutes. I had the opportunity to participate in that and presented seven tips on how to protect your personal assets from business debts. While space limits me from sharing all of the tips here, I would like to share a couple.
One problem that we see quite often is small business owners pulling out assets from their 401-k and pouring them into their business in order to attempt to have their business survive. What they fail to realize is that their 401-k account is protected from their creditors. However, once they co-mingle those funds or use those funds for payroll or to pay vendors, they may never be in a position to return those funds back to their 401-k. Additionally, unless they are of the required age, by pulling those funds out, they have probably also incurred additional taxes and penalties. Again, wasted funds. If ultimately the business is unable to continue, those funds which would be protected from their creditors under Florida law, have now been lost and may make it much more difficult to try to get a new start.
A second mistake we see small businesses make when facing difficult times is using their homestead residence which is protected under the Florida Constitution from creditors of their business and using any equity for a second mortgage for business. Again, a supplier or vendor would not be able to go after an individual’s homestead for debts related to the business. However, one of the exceptions to the homestead law is a mortgage secured by the homestead property. Again, if the business goes bad, and you cannot make the second mortgage payments, the bank may foreclose and you lose your homestead residence. The result is that your creditors have been paid and you lose your home versus, if you keep your homestead as sacred, at least you will maintain the roof over your head.
If you would like to receive all seven tips, please e-mail me at firstname.lastname@example.org and I will be happy to send you the full report.