Asset Segregation

Asset segregation is one of the many asset protection strategies. Asset segregation is one of the common tool of asset protection which is responsible for the multiple LLCs, partnerships, and corporations. Smart real estate investors break up their business activities and assets, set up multiple business entities (LLCs, corporations, or otherwise), and have different entities own or perform certain business functions. This is one of the most common and effective tool of asset protection.

If you own everything in your name (no asset segregation)

If everything you own is in your name and you are sued, you could lose everything. You can use corporations or partnerships to segregate your activities.

What is asset segregation?

For example, you have three businesses. You should set up three entities for the three business activities. If something happens to one of those entities, you lose only what that entity owns.

Another example is a physician who owns a high risk business. If something went wrong and he is sued, he could lose everything. However, if you put some of his assets in his wife's name (such as bank account, house, vacation homes, etc), he will lose his business but still keeps the house and whatever he put in his wife's name. Now, he only has to worry about his wife suing him in a divorce and he will end up with nothing and his wife will end up with everything there is left.

Putting assets in family members' names

You can put your assets in other family members' names to diversify risks. However, make sure you trust them completely. Your wife could divorce you and you lose everything. Other family members could turn against you and you lose everything.

Use trusts and corporations

Trusts, LLCs and corporations are the best way to segregate your assets and business activities. Using trusts, LLCs, and corporations, you have total control of your assets and you are also protecting your assets at the same time.