Oh no…your business is being sued. You’ve hit a rough patch and now you’re facing a lawsuit. As a sole trader, the stakes are incredibly high. You stand losing your personal savings, home, and ultimately your business. However, it doesn’t have to lead to that. With the right strategies in place, you can actually safeguard your business and hard-earned money. Here’s how you can do so– way before the unexpected happens.

5 Strategies to Protect Your Personal Assets 

To preface, when you’re operating as a sole trader, your personal and business assets are not separate. This means you stand losing everything to your name if you’re facing a lawsuit.

Hence, a well structured asset protection strategy will help keep your personal assets free from risk if your business is being sued. It’s not a complicated process– here are five key strategies you can undertake.

1. First, obtain relevant insurance coverage to your business operations. All businesses should have public and product liability insurance. These policies will safeguard you against financial losses as a result of lawsuits.
2. Second, as sole trader you’re susceptible to liability due to the inherent structure of your business. So, a good rule of thumb would be to consider transitioning to a more protective business structure. For example, a company or a trust. They offer a higher degree of asset protection by separating your business from your personal assets.
3. Third, consider shifting ownership of your personal assets to a trusted family member or anyone not directly involved in your business. This protects your business from general creditors if your business is sued. If a spouse or family member owns valuable assets used in your business, it’s important to register them on the Personal Property Securities Register (PPSR) to clarify ownership.
4. Fourth, be sure to maintain clear and accurate financial records. This includes detailed records of all business transactions such as– expenses, personal and employee income, asset ownership, and more. In the unlikely event your business is sued, this documentation will help you demonstrate a clear separation of your personal and business assets.
5. Fifth, always make sure to seek professional advice. A lawyer and/or an accountant with experience in asset protection will help you assess risks and develop appropriate mitigation strategies. Likewise, remember to stay informed about changes in specific laws and regulations. Regularly review and update your strategies to ensure compliance.

Is it Actually Possible to Completely Protect Your Personal Assets? 

There is no black and white answer. While a multitude of strategies exist to protect personal assets as a sole trader, achieving complete protection is highly unlikely. There are several reasons as to why this is challenging.

• Sometimes, regardless of your business structure, creditors may require personal guarantees. These guarantees will expose your personal assets to risk.
• Unforeseen circumstances– like a pandemic or a sudden shift in legislation can create liabilities for you. Hence, as a sole trader, conduct due diligence by staying ahead of the changing regulatory requirements.
• Asset protection strategies are highly complex. One missed documentation can undermine its effectiveness.
• Under certain circumstances– like fraud or negligence, courts can still hold sole traders personal assets liable for business debts.

Need Help? Reach Out to Us

We’ve outlined a number of clear strategies you should consider implementing as a sole trader. As a sole trader, insurance policies you should consider include:

• Public Liability Insurance
• Workers Compensation Insurance
• Motor Vehicle Insurance
• Personal Accident/Income Protection Insurance
• Professional Indemnity Insurance 
• Cyber Insurance

In the event you find yourself facing a lawsuit, reach out to your insurance broker immediately. First, your insurance broker will advocate for you; and second, it’ll ensure that your insurer extends indemnity. Moreover, they can also guide you through completing your claim promptly.

In specific circumstances, consulting with qualified professionals including lawyers, accountants, and your insurance broker will help you determine the best asset protection strategies for yourself.

At Morgan Insurance Brokers, our skilled team specialises in insurance policies for small to medium businesses. We’ll conduct extensive research into your business and guide you towards selecting the best insurance policies for yourself.

We understand that there is no one size fits all strategy when it comes to personal asset protection. However, with years of experience and over 150 insurers under our belt, we know how to help you minimise your risk.

Ready to partner with us? Contact us today for a free consultation. Let us help you determine the best ways to safeguard yourself.