Benjamin Franklin was one of the great “original” thinkers of the western world, and although I can’t say for certain he was thinking of asset protection when he spoke this famous truism, it is well known that he was also a great businessman in his day.
When it comes to asset protection, an ounce of prevention really is worth a pound of cure. A person or business in the habit of being careful with assets is less likely to lose them or have them damaged beyond repair, or even worse, have them morph into liabilities.
Asset protection is business strategy, done right.
Good habits, like eating well, are usually preventative in nature and sound great, but often hard to apply consistently. Asset protection is no different; it is a good business habit that is often hard to apply effectively. If we understand why this is so, we have a better chance of improving our defences. Here are a few reasons why asset protection strategies can be hard to adopt and apply:
- Loss of Vision: We know that it is hard to see risks and problems that are hidden, or may not even exist yet, but in reality most causes of business failure or catastrophic losses are in plain sight. In their entertaining but insightful book, The Invisible Gorilla, Christopher Chabris and Daniel Simons explain how psychologists have repeatedly proved that it is hard to see problems which we don’t expect even if they are right in front of us, in plain view. For example, the chances that a pedestrian in plain view will be hit by a car are much higher if there are fewer pedestrians about because the driver is not expecting to see a pedestrian even if looking directly at him. Business risks are similar; the danger in business is often obvious and in plain sight, but because it is unexpected, it is actually much harder to appreciate that it really exists and take action that will help protect your assets.
- The “Not Me” Syndrome: It is hard to put effort and especially money into protection against a risk which is considered unlikely, remote or even impossible. As Nassim Taleb shows in his work, “The Black Swan”, we are likely to believe that black swans are non-existent or incredible rare, when in fact they may regularly cross our paths – we just don’t know when and are therefore prone to ignore the possibility. While we may be able to understand the existence of a great risk on an intellectual level, the easiest way to cope with genuine fear that disaster is lurking is to ignore it.
- “Too Little Too Late”: When the creditors are hammering on the door, they will have their way with your house, your income and any other assets they can find. The creditors don’t even need to be banging on the door – if you can faintly hear the hooves of the creditor’s posse, time may already have run out as far as the law is concerned. Good creditor protection is a rain shelter built on a hot and sunny day, but who wants to do that?
In a nutshell, creditor protection is hard to do until it’s too late, and by then it’s also too little.
© MORRISON BROWN SOSNOVITCH LLP 2013. All rights reserved.