You can get a couple of lessons out of the Bernie Madoff ponzi that a person with their own little business should pay attention to. The Madoffs made at one or two mistakes. (Actually, they made a lot of mistakes.) Most of what they did wasn’t mistake, it was just plain illegal, but there were mistakes made that legitimate businessmen shouldn’t be making. If you’re in business there are basic rules you had better follow for good asset protection. The rules are violated every day, because the owner always thinks the rules don’t apply to him or her.
Most little businesses are structured so that the husband is the president and the wife is the vice president / secretary, or it may be the other way around. Both spouses should never participate in the same business as officers and directors. One spouse can work in the business as an employee. I’ll call them the silent spouse. They shouldn’t be the office manager or CEO or any Chief anything – Just an employee. They may have huge influence over the company, but that influence should be in bed, not at the conference table.
With the Madoffs, both spouses were deeply involved in the business. I understand that they were both breaking the law, so it doesn’t really matter how the business was structured, but if you assume that everything is being done legally, they made a critical mistake. They were both front and center in the business. If both spouses are officers and directors, then when someone comes after the company and “pierces” the corporate veil, both spouses are liable. If only one spouse is in the business as officer and director, then only one spouse gets in trouble. The other spouse is just a silent employee, and they can usually stay out of the mess.
More importantly, assets held by the “silent” spouse can usually stay out of the mess. Yes, if you are in a community property state you are losing a lot of the asset protection by being able to separate the assets between spouses. But, that’s the price you pay for living in the Republics of California, Texas, Washington, or one of the other community property states. Assuming the “silent” spouse can hold their property separately, the property should be held in a living trust, so that the other spouse won’t have to probate the property should the silent spouse die. The story I tell in my new book, Guaranteed Millionaire, about Mr. Smart shows you the power of following the rules. Mr. Smart’s business went down big time, and yet, his wife walked away with million of dollars out of the business, and there wasn’t a thing the attorney general could do about it.
The silent spouse should never sign on any of the company’s official papers. They should especially never sign notes, loan papers, contract, etc. The silent spouse has to be protected from the business transactions. They don’t sign anything. Yes, the mortgage company will want them to sign, but you are going to tell the mortgage company that the spouse is out of town in China for a year, or they have nothing to do with the company. (Actually, they don’t have anything to do with the company.) The loan company will often back down. Of course, they want everybody and their brother to sign the loan, but they aren’t going to get me to sign your loan.
The silent spouse should never show up at the loan company. The silent spouse just is gone, they hate the company, and they won’t sign a thing. If they have to sign, evaluate the risk. When the business encounters lawsuits and other financial or legal problems, the silent spouse won’t be caught in the mess, if they have been shielded from the business. Ruth Madoff probably will go to jail also, because she was way too involved in the “business.” If the business and marital relationships are structured properly, a lot of family assets can be protected from business problems. The silent spouse needs to use a living trust. Living trusts don’t provide much asset protection, but the award winning book, Guaranteed Millionaire, shows you how to squeeze some asset protection out of the living trust.
Most lawyers aren’t going to give you any asset protection value with a living trust, but if you use them right (the living trusts not the lawyers) you can get some asset protection. Whether you already have a trust or are just setting up a living trust, or structuring your business affairs, I can help. The “students” using the Accumulation and Preservation of Wealth, my asset protection course, can call anytime and ask the legal questions with no charge. You probably don’t have Accumulation and Preservation of Wealth yet, so start with the Guaranteed Millionaire and my FREE 90 minute DVD, Using the Law to Make Money and Protect Your Assets. If you already have the Accumulation and Preservation of Wealth, get the Guaranteed Millionaire, because it is a great read. It’s funny and flat out motivational. Strange a funny, motivational legal book – it’s true. Get your copy of Guaranteed Millionaire now. Call 800-806-1998.
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