“The history of failure in war can almost be summed up in two words: Too late. Too late in comprehending the deadly purpose of a potential enemy. Too late in realizing the mortal danger. Too late in preparedness.” —General Douglas MacArthur
Recently, former U.S. Senator and Governor of New Hampshire, Judd Gregg, wrote an opinion piece on thehill.com entitled, “The next pandemic—trial lawyers.” Whether you agree with Mr. Gregg in whole, in part, or even, not at all, it still pays to be prepared. And now, before businesses open up again, is the time to get prepared. At this point for business owners, asset protection is the name of the game.
So what can business owners do to protect themselves and their families, in the event a customer, client or patient contracts the coronavirus, and elects to file suit against that business, whether they were infected there, or not? Here are a number of possible actions to consider, with the aid and assistance of the following prudent experts: attorneys, accountants, insurance agents, financial planners and retirement plan custodians.
First, make sure the business in question is organized in a way that provides protection against personal lawsuits: depending on state law and the type of business involved, limited liability companies/partnerships may (or may not) provide protection against the risk of losing personal assets to a potential judgment. A sole proprietorship will not. Corporations are separate legal entities, and can provide protection. In all cases, however, be sure to comply with all legal requirements for the business form’s operation: annual meetings, reporting submitted, fees paid, etc., so as to preclude any “piercing the corporate veil.”
Second, verify with your property/casualty insurance company that you have an adequate amount of COVID-19 protection. Insist on knowing the exact parameters of the coverage involved and duties of the insurance company to protect. And don’t settle for a general statement like, “you’re covered.” Know exactly what coverage you own.
Third, retirement plans covered by the Federal ERISA statute provide more protection against bankruptcy and creditor claims than do individual retirement accounts, the Federal bankruptcy protection of which is limited, and creditor claims protection is subject to State, not Federal law. Consider moving IRA assets to the business’s qualified plan, if 1), the plan will accept transfers from IRAs (not all plan documents have this provision), and 2) the plan has the ERISA protections (Solo 401k plans, and plans that don’t have employee participants do not meet the standard).
Fourth, consider transferring non-retirement assets (houses, non-qualified investment accounts, etc.) to the spouse who has a lower level of risk, and is not one of the business owners. Needless to say, there must be a high degree of trust and a stable marriage for this possibility to work.
Fifth, take all necessary actions BEFORE there are any infections, incidents, or lawsuits. Don’t be “too late,” in taking action.
The motto of the United States Coast Guard, whose performance during Katrina was outstanding, is, “Semper Paratus,” meaning “Always Prepared.” In a post-closure America, business owners need to take to heart both the words of General Douglas MacArthur, and the motto of the Coast Guard, and not get caught unprepared for any lawsuits which come their way.
Frank Metrusky, AIFA, BFA, CFP, is the chief ethos officer of Metrusky Retirement Services LLC.