How to Avoid Disaster by Separating Business and Personal Finances
October headlines about “Rich Dad” author, Robert Kiyosaki, set the financial world abuzz. The headlines stunned many: “Rich Dad Author Files for Bankruptcy.” Was Kiyosaki, and his advice to adopt a certain mindset to become wealthy, a fraud?
A lesson on asset protection
Hardly! The case actually involved one of Kiyosaki’s businesses, Rich Global LLC, which had not been operating for years.
Kiyosaki himself did not file for personal bankruptcy. He’s still worth an estimated $80 million, and that money is safe from the litigators in this case.
The company, Rich Global, LLC, was sued by a former business partner, Learning Annex. Learning Annex claimed unpaid royalties going back to 2002-2004. Rich Global, LLC contended that royalties were never part of the deal.
The courtroom arguments on both sides were compelling, but the jury eventually decided in favor of Learning Annex. And the court awarded Learning Annex a $23.7 million judgment against Rich Global.
However, since Rich Global wasn’t active since 2009, it only had $1.8 million in assets. Their assets were not enough to satisfy the $23.7 million judgment, leaving the only option to file for bankruptcy and dissolve the corporation.
Although Learning Annex was upset by the outcome, note the lesson here. Because this was a corporate bankruptcy, Kiyosaki protected his personal assets. The judgment against the company could not touch his personal assets.
The risks of success
No matter who you are or what you do, your growing wealth will make you a target. Don’t think that you have to be as wealthy and successful as Robert Kiyosaki to become the target of a lawsuit.
Understanding asset protection
Asset protection isn’t only for the rich. And it’s not about avoiding the consequences of fraud. In the cases of fraud, a judge can “pierce the corporate veil” and come after personal assets.
Asset protection is simply a tool to protect yourself from life’s potential dangers. If you don’t have an asset protection strategy in place, you’ll want to establish one. This is especially true if you are thinking of starting a business or are currently running a business.
Robert Kiyosaki had enough foresight to protect himself from the start. Every new business started as a separate entity, and he runs his businesses’ affairs through multiple companies. Because he set up Rich Global as a separate entity, Kiyosaki’s personal assets were protected.
It’s not just businesses that need asset protection. You do, too. Do your research, and find an attorney who focuses solely on asset protection because it is a highly specialized field.
Sense Financial exists to educate and empower its clients. Contact us today if you have any questions.