Despite the importance of shielding the practice and its assets from potential threats, most practice owners are so busy running the practice that they ignore protecting its assets. Further, most asset protection specialists focus their efforts on shielding personal assets from potential threats.

Whether the blame falls on the practice owner's failure to plan or the advisor's focus on personal assets, the protection of the practice assets is too often ignored.

Would you believe that most practices we see have maximum lawsuit exposure? If you think we are kidding, let's take a little quiz and see how you fare.

  • Is your equipment owned by your practice or by you personally?
  • Is practice real estate owned by your practice or by you personally?
  • Are any other practice assets owned in the name of the operating practice?

If you answered "yes" to any of these questions, your practice is vulnerable. This is only the beginning of the lawsuit risk quiz. Consider the following questions as well.

  • Do you have an employee manual?
  • Have you complied with all of OSHA's regulations and state and federal guidelines for worker's compensation, discrimination, harassment and so on?
  • Do you have insurance to cover such violations?

If you answered "no" to any of these questions, you and your practice are vulnerable to financial risk. Knowing you are vulnerable is not a problem, unless you don't do anything about it. Now that you know you are vulnerable, you can seek the advice of professionals to help you remedy your situation and protect your assets.

Asset segregation using multiple entities

If you have read any of our books or reports, you should have learned the following:

  • Why there is a need to protect assets in a highly litigious society, such as that of the United States.
  • How little asset protection is offered by traditional financial planning.
  • Practice owners and real estate investors have significantly more asset protection risk than those who do not own a practice or rental properties.

As a result of these facts, there is an increased need to protect multiple assets or multiple properties from the various financial risks that threaten them. This can be done through asset segregation using multiple legal entities.

In order to understand the importance of asset segregation using multiple legal entities, consider the example of separating ownership of real estate and equipment from the operating practice. There are three reasons to separate the ownership of the real estate and equipment (RE) from the operating practice.

First, the RE is a valuable asset that should be isolated from any liability created by the business. Second, the RE itself may cause liability. That liability could be in the form of slip and fall claims from people coming and going on the premises or claims deriving from the equipment injuring someone.

If the RE and the practice are operated by the same legal entity, all eggs are in the same "basket." This means that the claim will be against an entity that has something to lose — those assets.

By separating the RE from the practice, you have asset-protected the practice. By isolating the practice from the real estate, you may have removed the premises liability and equipment liability created by the practice's real estate. In doing so, each entity is protected from the other.

What separation involves

Separating ownership simply involves creating a new limited liability company (LLC) and transferring ownership of the real estate to the new LLC. Because the RE is no longer owned by the operating practice, employees suing the practice have no claim against this RE or the LLC that owns the RE.

So long as the transfer to the LLC is done properly and the formalities of the new arrangement are respected, this protection will hold. Of course, getting advice on how to maximize the tax benefits of such a structure is crucial as well.

Every practice needs the buy-sell agreement

As an owner of a privately-held practice, you likely spend 10 hours per day and six or seven days per week growing your practice to the point where it can provide a measure of security for your family. We know this because we have been there ourselves.

Nonetheless, if you ignore one fundamental legal contract, all of your work may be in jeopardy. That contract is the buy-sell agreement.

Consider this

Many practice owners fail to protect their practices from practice or personal lawsuits. It is important to protect your practice — as it can be the main source of income for you and your family.