What is asset protection? Are you at risk of losing your assets if you get sued? How can you separate your risky assets from your safe assets and from your business?
In this podcast episode, Joe Sanok speaks to Douglas Lodmell about protecting your assets.
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Meet Douglas Lodmell
Douglas Lodmell is Managing Partner of Lodmell & Lodmell, P.C., one of the nation’s leading Asset Protection Law Firms. Originally from Geneva, Switzerland, Douglass stood out at an early age as one of the brightest minds of his generation. His capacity to make the complex simple allowed him to excel during law school, receiving the Jacobs Burns Medal, an award given to the single student with the highest GPA. He completed his Legal Masters (LL.M.) in taxation at the nation’s leading tax program, New York University School of Law.
Today, Douglas’ law firm is responsible for protecting over $4 Billion in client assets. Douglass spends much of his time teaching, speaking, and leading thousands of business owners, corporate executives, investors, and other professionals who have often worked most of their lives to accumulate wealth of various types, including real estate and securities. Douglass is also the author of the book The Lawsuit Lottery: The Hijacking of Justice in America.
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In This Podcast
- Trends seen during the pandemic
- What’s the value of your practice?
- Different styles of business owners
- Basic core protections that every private practice business should have
- Other questions to ask when looking at protecting your assets
Trends seen during the pandemic
It’s going to be a long time before we get back to any kind of normal. A lot of businesses have been disrupted so they’re now taking this opportunity to look at their business and go through their planning to see if they have actually done everything right. They are also starting to look at their business liabilities and starting to question what will happen if they are unable to pay debts. How do we protect our personal wealth, that we’ve worked our lives for, from business liabilities and the challenges that Covid-19 has created?
- If your practice comes down at all, quickly figure out how to protect your cash flow – if you don’t protect your cash flow, you won’t survive this thing. So, pull back on expenses as soon as is needed to make sure you get through this.
- Look at your assets and determine if they are structured properly – Often small business owners do not have a clear separation between their business life and personal life, and they treat them as one thing financially. This can be fatal when you’re trying to protect your personal assets from the business risks that you’ve created.
The actual equity of something (the amount you could sell it for) minus the liability (how much you owe) = the asset value. Understanding what your real assets are is important. You can’t protect them unless you understand what they really are.
What’s the value of your practice?
Your practice has value, but what is it worth to the next person? For some solo practitioners, if they leave there’s really not much left other than maybe some files and a phone number that might still ring. The value of that practice is going to be much lower than one with streams of revenue built into their practice.
This really points to owners of businesses needing to continually take hats off and hand things off. If you can’t take a month off without your business falling apart then you don’t actually have a business, you have a job. It needs to be as automated as possible outside of your own time.
Different styles of business owners
Douglas has discovered that there are two big splits when it comes to styles of business owners. Whichever one you are is okay. The one doesn’t have as much terminal value or exit value but maybe has less stress for those people.
- The business owner who doesn’t want a lot of business stress – they don’t want to run a big business. They like what they’re doing and have figured out how to do it efficiently and profitably. The stress of learning how to pass off hats and delegate outweighs the benefit of having something to sell later on.
- The business builder – They understand that building the business has an inherent value and that will give them something to sell, so they work on it.
The liabilities we know about: mortgage, car loan, line of credit. Those are the obvious ones, where we’ve signed on a dotted line and accepted the money. Those are liabilities because you owe the money to the bank but they are offset by the assets that you acquire with them which is why the back was comfortable giving you the money.
The more concerning liabilities are those that you haven’t agreed to or the ones that you don’t know about e.g. a lawsuit that comes at you and you’re left with a judgment against you for half a million dollars. You now owe that just as much as you owe the mortgage and the car loan. The difference is that there is no collateral for that kind of liability but there’s a judgment because the court was convinced that you owe the money.
Basic core protections that every private practice business should have
- Separate your risky activities from each other, from the safer activities, and from the assets. When you have a risky business, which every clinician listening does, your asset should not be in your business.
– Example – A big mistake that Douglas sees is buying your own office building and then putting that inside of the actual practice. The better way to do it would be to create a separate LLC (Limited Liability Company) for the office building and then lease it to yourself. You as the tenant separates the asset from the practice itself.
- Make sure to also look at your other assets – cash, liquid assets, and safe assets
– A safe asset is something that the asset itself can’t create the liability e.g. stock account, bond holding, note receivable from a loan you made.
– A risky asset is something that the asset itself can create a liability e.g. a car, an office building, rental property, a business.
So, if you mix the safe assets and the risky assets, the risky assets create a risk and expose the safe assets to all of the risks of the risky asset.
Other questions to ask when looking at protecting your assets
Do I understand what insurance I have and how it works?
Insurance is great but there are limitations to insurance. Insurance covers named liabilities in the policy e.g. your car insurance covers car accidents. It doesn’t cover a business partnership that goes bad.
I have an umbrella policy so aren’t I covered for everything?
An umbrella policy is not an umbrella over everything, it is an increased limit on existing coverage. It just increases the limits, that’s all it does, that’s why they’re cheap. They have just increased the amount that they will cover on already existing coverages. Asset protection is totally different.
Can I try to secure my assets once a lawsuit has started?
If you try to create liability or create an asset protection structure after you’ve already been notified of the obligation or sued, it’s really difficult, if not fatal, because there’s a concept in law called Fraudulent Conveyance, which basically says that if you convey an asset with an intent to delay, hinder or defraud a creditor, that conveyance can be reversed.
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Books by Douglas Lodmell
- Christine Carville Started a Group Practice a Year Ago and Now Has 30 clinicians | PoP 466
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Meet Joe Sanok
Joe Sanok helps counselors to create thriving practices that are the envy of other counselors. He has helped counselors to grow their businesses by 50-500% and is proud of all the private practice owners that are growing their income, influence, and impact on the world. Click here to explore consulting with Joe.
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This is the Practice of the Practice podcast with Joe Sanok, session number 467.
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I’m Joe Sanok, your host. If you have just discovered the Practice of the Practice podcast, I want to welcome you. We might be 400 some episodes in and yes, there’s a lot of episodes you can go back to, but I’m so glad you’re here because you know, there’s still people that are saying, I want to start a practice, I want to start a telehealth practice, I want a multiple stream of income, I’ve been laid off from my job and I want to now start a practice and be more in control of my life. And I am here to support you in that, our whole team is. You may not know how our team operates; it’s not just me that does all this. We have Sam and Sam and Kirsty, all in South Africa, doing a lot of the marketing, the videos, the editing, the show notes, supporting our Done For You podcasters. We have Jess who is our Director of Details; she manages my email, my schedule, kind of keeps everything together, watches for things that maybe I’ve missed. She even checks in on Facebook for me to just make sure that there’s nothing that I’ve missed if I’m kind of too busy in other areas. We have four sound engineers here in Traverse City. We have Josiah, Silvio, Mitchel, and Elizabeth, and then we have our consulting team. We’ve got Whitney, Alison, and Jeremy.
And so, it’s pretty amazing to see how this team has developed. We now are managing 14 additional podcasts in addition to this podcast. So, we’re helping people through the Practice of the Practice Podcast Network. And actually, throughout July, you’re going to get to meet some of those people, some podcasts that have launched and are getting hundreds of reviews and ratings and are getting a ton of downloads, people that are really helping the world. So, we’ve got the Imperfect Thriving podcast, there’s also the Bomb Mom podcast, the Empowered and Unapologetic podcast, the Beta Male Revolution podcast; these podcasts that are really reshaping the world in a really cool way. And so, if you want to see any of those over at practiceofthepractice.com/network, we’d love for you to check out all the other podcasts that are part of the Practice of the Practice Podcast Network. They’re podcasters that we’ve interviewed and worked with to really say this is the change that we want to see in the world. We want to support that change; we want to help those people. You know, if you ever want to apply for any of our services, you can go over to practiceofthepractice.com/apply, whether it’s Done For You podcasting, consulting, masterminds, all of that’s over there.
Well, today, we’re going to be talking about protecting your assets; to understand how to structure all of your assets so they’re protected. A really important conversation with Douglass Lodmell, and I’m really excited about what Douglass is going to talk about. I actually scheduled an interview with him right after this because I wanted to kind of go through my own structure, and we’re doing some restructuring. And you know, we’re kind of working through that process. So, without any further ado, here’s Doug.
Well, today in the Practice of the Practice podcast, we have Douglass Lodmell. Douglass is managing partner of Lodmell & Lodmell, one of the nation’s leading asset protection law firms. Douglass’s law firm is responsible for protecting over $4 billion in client assets. Douglass spends much of his time teaching, speaking, and leading thousands of business owners, corporate executives, investors, and other professionals who have often worked much of their lives to accumulate wealth of various types, including real estate and securities. Douglass is also the author of the book, The Lawsuit Lottery: The Hijacking of Justice in America. Douglass, welcome to the Practice of the Practice podcast.
Happy to be here, Joe.
Yeah, well, this is gonna air sometime in June ish. That’s the plan right now. So, we’re gonna hopefully be looking back on some of what’s been happening in our world, but it’s not going to go back to normal; we know that. So why don’t we just start with, in the middle of this pandemic, what are trends that you’ve noticed with the business folks that you work with, in regards to securities, in regards to asset protection? What are you noticing right now and then maybe we can kind of zoom out from that and talk outside of just when COVID is happening?
Got it. Well, it’s interesting because you know, right now, obviously, life is not what we are used to. It’s just not normal. As you said, Joe, it’s probably not going to go back to normal, certainly not anytime soon. People I’m talking to think that the timeframe is a year or longer before we’re even back to kind of semi normal. So, for a lot of my clients, you know, this has disrupted their business in a way that has caused them to look at their business and say, hey, did I do everything right? So for some of them who aren’t working as much as they would normally because, you know, their practice is shut down, or they just have more time, they’re taking this opportunity to really go through their planning, go through their corporate structures, go through their estate planning, and so I’m getting a lot of questions on, hey, one, do I have everything set up? Have I done everything I need to do? And two, they’re looking at business liabilities and starting to question, what happens if I can’t pay this line of credit back timely, or if I lose a tenant and I’m not collecting the rents? And they’re starting to ask the questions of how I can protect my personal assets from my business liabilities. So those are the kind of the themes of what’s going on, as far as the questions. And those are great questions because, you know, that’s really the key. How do you protect your personal wealth that you’ve worked your whole life for, from business liabilities and the challenges that this whole COVID thing has created?
And so, what are some of the key concepts with those questions? So, what are maybe a couple of the bullet points of how you answer those?
Well, okay, so you know, the first thing I am advising is, if your practice income is down, at all, then quickly figure out how you can protect your cash flow. Because if you don’t protect your cash flow, you don’t have a way to survive this. So, surviving it is the first thing and that means pulling the power back on expenses as quickly as you need to, to make sure that you get through this.
The second thing is now take a look at your assets and say, are they structured properly? Here’s what I find for most people that are small business owners and doctors, clinicians, and those that have a personal and business life that almost feels like one thing, is that they treat it as one thing financially. So, you know, income is coming into the business, it just kind of slides over into their personal life, they pay expenses from both places. There’s not a clear separation, they haven’t done a good job of really saying, hey, this is my business life, this is my personal life. That works fine when everything is great, when no one’s looking, when you have no liabilities, when business debts and obligations aren’t being stretched. But it is fatal when you’re actually trying to protect those personal assets from the business risks that you’ve created. Whether it’s a risk of a malpractice suit or a lender, it doesn’t really matter. So there’s a lot that can be done to just create that separation, and that’s where asset protection really shines, is creating that separation so that if you do have a business liability, or personal liability, or any type of liability, that your assets have a protection around them.
Well, let’s zoom out and just do a couple terms for people, because some of these terms might be new to them: liability, separation, and all those different terms. What are the core just dictionary terms people need to know for this discussion?
Okay, so yeah, that’s a really good question, Joe. Most people don’t back that far up. But you’re right, most people don’t understand. First of all, the most important term to understand is asset. And there’s a lot of misunderstanding about what an asset is. So, some people say, oh, yeah, my car is an asset. Well, you know, it’s an asset to you in that it gets you to work every day and gets you to the store, but is it an asset from an asset protection standpoint? Well, does it have any equity? So, if you have a car that you could sell tomorrow for $50,000 and you have no debt on it, okay, that’s an asset; it’s worth $50,000. So, if you had to liquidate it, and pay other bills, you could get $50,000. If you have a car that is worth $20,000, and you still owe $23,000 on it, that’s not an asset. And the same is true with every other type of asset in your life. So, whether it’s your home, whether it’s your practice, office building, whether it’s rental buildings that you’ve purchased, anything that has an obligation attached to it, the asset value of that is the actual equity. So take the amount that you could actually sell it for, and it doesn’t matter what you payed for it, it’s what you could sell it for today, minus the liability – that’s what its asset value is. So, I have people call me and they’ll say yeah, I have, you know, $4 million worth of real estate. I say, great. And when we get into it and we look at it, what they have is $4 million of market value of real estate and $3.7 million of mortgages. So, what they really have is $300,000 of real estate.
So, understanding what your real assets are is really important because we can’t protect them unless we understand what they really are. Obviously, cash in the bank, just look at balance, that’s the asset value. But when we get into other things, a full analysis has to be done. And we get to your practice, you know, your actual value of what is your practice worth, well, sure, it’s an asset. It’s your cash cow. It’s what’s paying the bills, it’s what’s bringing the money in. But is there a value to it other than that? I mean, could it be sold?
Yeah, you know, having sold my practice just under a year ago, to walk through that and look at how much income came outside of myself because I’m not selling myself to someone else. I’m done doing counseling. And so, to have been able to, for three years prior, to have itemized everybody who brought the money in outside of myself, to say what was the profit and loss, was so valuable in valuating that company. Because then I could say, yeah, I’m not going to be in this practice, but here’s the money that’s coming in, here’s all the expenses, even though we didn’t own a building or anything like that, we could then get some kind of clear numbers as we worked with the banker that was offering the loan for the new buyer.
Right. That’s exactly right, and you just went through it. So, your practice has a value, but what is the value? You know, and it just, it’s gonna be a function of what’s it worth to the next guy without you. And so, for some clinicians, we’re… they’re it. I mean, they’re the only thing; there’s no other revenue coming in, and if they leave, there’s really nothing but maybe some patient files and some goodwill, and a phone number that may still ring. Well, that value is going to be much lower than someone who has, you know, other streams of revenue built into their practice, which will go on even when they leave.
And I think that’s… even though my next comment’s outside of kind of our conversation, but it really points to why owners of a business need to continually take hats off and hand things off and have it not be based on them. You know that whole kind of profit first clockwork; I talked to Mike Michalowicz a while back and he said, if you can’t take a month off without your business falling apart, you don’t have a business. And, if you’re thinking of selling it, you have to be aggressively taking those hats off so that it can be as automated as possible outside of your own time.
Yeah, that is so true. If you can’t take a month off, you don’t have a business, you have a job. And that’s fine. And here’s what I’ve learned, Joe: there’s a couple of different big splits in styles of business owners. One of them is the person who doesn’t want a lot of business stress. They don’t want to run a business. They really like what they’re doing; they figure it out. As long as they’re a one man or one woman show, they’ve kind of figured out how to do it efficiently and profitably and for them, to build and take the hats off and pass it off and delegate and do that, that stress of learning how to do that, outweighs the benefit of having something to sell later on. The other style of person is just the opposite. They like that, they understand that building that has an inherent value, and that will give them something to sell. And so, they work on it. And it’s okay, either one that you are, really it is. And so, if you’re just the one that is a hey, I’m super happy being just my own thing, that’s fine. That’s absolutely fine. It doesn’t have as much terminal value; it doesn’t have as much exit value. But it has maybe less stress for those people. So yes, that is really an important concept.
Well, one other term I want to just talk about before we dive in too much deeper is the idea of liability. And I’m sure there’s some kind of categories and risks around that. But will you just talk a little bit about, when you talk about liability, what do you think through that maybe we aren’t, as business owners, thinking through?
Yeah, that’s a great question. So, there’s the ones that you know about; a mortgage is a liability, a car loan is liability, a line of credit that you have drawn on, that you owe, is a liability. Those are the real obvious ones. You’ve signed on the dotted line. You’ve said yes, give me the money. I’m going to go and buy this house with it. Those are liabilities because you owe the money to the bank. But they are offset by assets almost always, right? That’s why the bank was comfortable giving you the money.
The other liability that I’m frankly more concerned about are the liabilities that you haven’t agreed to, the ones that you don’t know about. Those are the lawsuits that could come at you. So, if a lawsuit comes and you end up with a judgment against you for half a million dollars, that’s a liability. You now owe that just as much is the half a million dollars that you took out a loan for at the bank to buy your home. You owe that in the same exact way. And it’s legally enforceable to that judgment holder in the same way that the bank mortgage is legally enforceable against you. The difference is there’s no collateral for that. And so they get a judgment, not because you agreed to it and they saw some collateral that they were happy to accept, they got a judgment because they convinced a court that somehow you owe them the money.
Now, in a society where we have a really functional legal system that protects all sides, you don’t really need to worry about those types of liabilities. Because they’re rare, they occur only when they’re really necessary, and what I’m talking about is, you know, basically the rest of the world. Europe and Australia and Canada, and all the other developed countries. They have a legal system that really makes it difficult to establish a liability against someone without real cause. Our legal system is different. Our legal system has been dismantled; the protections against the frivolous lawsuits and the unnecessary lawsuits have been dismantled. And so, what we have now is a… and that’s what you mentioned, I wrote a book called The Lawsuit Lottery: The Hijacking of Justice in America, our legal system has turned into a lottery mentality. And so, you see the billboards all over any major city, you know, injured… I lived in Miami for many years, and for a while there, there was billboards that just flooded the entire city that just said, Who can I sue dot com. Who can I sue dot com. Yeah, I was just like, Who can I sue dot com, like, hey, come to us with your ideas, we’ll help you figure out who we can sue with you. Because the lawyers in our country have become partners in the lawsuit; they get a cut of the action. They’re actually participating with you and you don’t have to pay them unless they win. So, it’s unethical. It wasn’t even allowed when we created our legal system. We didn’t allow that kind of behavior. We considered it unethical, you could be disbarred for it. Today we’ve absolutely institutionalized it. So, getting a judgment or starting a lawsuit, which can run up hundreds of thousands of dollars of legal bills, in our system, is very, very easy to do. And because of that, it’s easy to hijack people with money. And those with money, anyone, or with risky professions, are easy targets. Or with employees, are easy targets. So, you know, that’s the liability that we’re most focused about when we talk about asset protection, is lawsuit judgments, and liabilities that come from lawsuits.
Yeah, well, even when I sold my practice, so the way I had structured it for years was I had an LLC, and then I was doing business as Mental Wellness Counseling and had a DBA also for Practice of the Practice, and my accountant and attorney said, you know what, you’re doing clinical work, and then you’re also doing this consulting work that’s around clinical work, it all makes sense to keep it together. Well then when I sold the DBA of Mental Wellness Counseling, because all of those finances were so intertwined, I still had that LLC and then the DBA, and my accountant and attorney said, you know what, all that clinical liability of the patients and clients that you saw for years, that needs to stay with that LLC, we need to start a new LLC Practice of the Practice. And so, we went through that whole process. And that didn’t even occur to me that, you know, these years of clients that I saw, that that was a liability and luckily, my attorney, my accountant, noticed that said, hey, let’s do a new LLC because you’re not doing clinical work anymore.
So, what are some of those types of things that, okay, the problem is that we’re in a lawsuit friendly world. You know, you even said if you have employees, if you see clients, if you’re in a risky business, I mean, we are as clinicians in a risky business. So, what are maybe three to five things that are just basic core protections that you would say every business should have that’s in the private practice world?
Yeah, yeah, great question. So, what you just brought up is a perfect example: separating your risky activities from each other, and from the safer activities, and from the assets. So, in other words, compartmentalizing all of the activities and the assets. So you have a podcast, Practice of the Practice, and then you have an actual, you know, clinicians, where you’re seeing patients, those are two separate things and definitely shouldn’t be in the same LLC, in the same business, even though they’re related. Now, from an accounting standpoint, that might have worked fine, but from a liability standpoint, that doesn’t work at all. So, your accountant and CPA were 100% correct to recommend that those be separated.
We look at every client and do the exact same thing; we look at their activities. So, one of the core tenets of asset protection is separate risk from assets. So, if you have a risky business like every clinician listening to this does, your assets should not be in your business. So, one of the big mistakes I see a lot is they’ll buy their own office building, and then they’ll put the office building inside of the actual practice. And an accountant years ago might have said, well, that makes sense because we get to depreciate the building and you know, but the much better way to do it would be to create a separate LLC for the office building, and then lease it to yourself as the tenant. That separates the asset out from the practice itself. Every other asset should also be looked at.
So, if you have cash, liquid assets, safe assets… what I consider a safe asset is something that the asset itself can’t create the liability. So, a safe asset would be a stock account, or a bond holding, or a note receivable from a loan that you made. Those are all safe. You’re not going to trip on the statement for the bank account and then sue the bank account owner. A risky asset is the opposite. That’s something that the asset itself can create a liability. So, a car, an office building, rental property, a business, any of those things you can actually have the asset itself create the liability. So, if we mix the safe assets in with the risky assets, what happens is the risky asset creates a risk and then exposes the safe assets to all the risk of the risky asset. I’ll give you an example, Joe. I had a guy call me, he was in California, he had three rental properties, and they were all worth about a million dollars of equity. And he put them all in one LLC because somebody told him that that was enough. Well, what happened is one of the properties ended up with a mold issue and the mold claim was about $5 million. His insurance was a million dollars, so he had a $4 million excess judgment. And the other two properties were in the same LLC, so that judgment holder actually had access to all three properties even though only one property created the risk. So, the better solution for him would have been do three LLCs so that the risk of the mold in one didn’t infect the others. And that’s something we look at with every client, we look at all their assets and we say, where can we divide this up, separate the risky assets from the safe assets, parse out the risk itself as much as possible from all of the assets and design a structure that can protect as much as possible?
Well, I’m thinking okay, we have two Airbnb’s; they have their own EIN, but they’re under the same EIN and it’s just like, okay, I guess I gotta talk to Douglass a little more after this call to make sure that we’re protected.
Right. So, if you got two Airbnb’s, which means two properties that you own, right?
Okay, so depending on their values, you would have either a single LLC, if there’s very little equity in both, you might want to mix them because you feel comfortable, I’m not exposing too much. But if they both have significant equity, you’d be much safer having two LLCs and then you probably want a third LLC as a management company, that’s really taking on the risk of managing the Airbnb so that the property ownership LLCs are doing nothing more than leasing it to the management company.
So, we do the same thing with… some of my clients have a lot of equipment, whether they’re doctors, or other professions where equipment is a big part of what they do. We’ll take that equipment and we’ll pull it out of the practice, and then we’ll lease it back to the doctor. So that, same as we do with the office building. We can also do that with intellectual property. Some of my clients have very valuable intellectual property. In other words, their practice value, you know, the name itself has value. And so we’ll take that intellectual property which is the name, all of the scripts and anything that is creating the value of the name, out of the practice, put it in a separate Limited Liability Company, and then pay royalties from the practice to that. That way, if the practice has a devastating liability, they can lose their license to the intellectual property, the name is saved, which is really one of the most valuable pieces of it, and then can be re-licensed out to another practice, including another one that the same client starts.
Wow. So, something like… so, with like Practice of the Practice, would you say separating out the website and podcasts from the consulting that… you would recommend that being two separate LLCs? And then even adding to that we have a bunch of 10-99 contractors that do consulting or do various things – would each of those be its own LLC potentially? And I know that you would have to dig in deeper, but on the surface, what would you say?
Yeah, well, the service, what I’d do is I’d look at everything, and we look at… it does matter, the value. So, we want to look at the risk and the value exposure. So, if Practice of the Practice itself is, first of all, it’s a fantastic name. I mean, it’s really, really a good name. And it has value and yes, you are the host, and you’re creating this value but if you end up at a point where the Practice of the Practice podcast is seen as a standalone, valuable thing, then having that name, and all of the content separated out into another LLC, which then is receiving licensing royalty from you, Joe, that is paying to use the name, Practice of the Practice, you’re building the value of that name, that later could be sold to somebody else. Or, let’s say somebody… especially if you’re doing counseling or consulting work inside of that, and somebody says, hey, you consulted me, and I followed your advice and my business tanked and now I’m suing you for malpractice, or errors and omissions, or whatever it is, yeah, you’d want them suing not you personally, and not suing the name, the same business that has the name, but suing another LLC that does nothing but the consulting. So, yes, I would look at each one of those things in detail. There’s a whole bunch of other detailed questions that I would ask you and determine, okay, what’s the best structure? It’s not about over complicating, though, Joe, it’s not about making 10 LLCs just because we can. We really want to keep it as simple and clean as we possibly can. As Einstein said, make it as simple as possible, not simpler.
I love that. Okay, so what else? I feel like now I’ve asked a bunch of questions that I know to ask. What are questions that people ask that maybe, I don’t even know what I don’t know?
Right. Okay. Well, that’s a great one. Probably number one is that people are sitting here going, you know what, I have insurance. I’ve never worried about this because if I ever get sued, I have insurance. And they feel like they have a blanket coverage. Some people even say, well, I have an umbrella policy, so I’m really covered. You know, umbrella covers everything. It’s very important to understand what insurance is and how it works. Insurance is great. I’m a fan of insurance. I mean, really, I have insurance. I think everybody should have insurance. It’d be crazy to drive your car without auto insurance, or fly your plane without aviation insurance, or own a home without fire and liability insurance. But there are limitations to insurance. Insurance covers liabilities, named liabilities in the policy. So, your car insurance covers car accidents; it does not cover a business partnership that goes bad. It covers car insurance. Your home insurance covers your home and fires and liabilities related to your home.
So, there’s a… the insurance companies have circumscribed very clearly what they’re willing to pay for. And over the years that circle has gotten smaller and smaller and smaller, and the number of exclusions has gotten bigger and bigger and bigger. So, if you have malpractice insurance, or errors and omissions, or any kind of professional liability insurance, you’ll find if you look at your policy, that you’re covered for a list of things, right? But if these exceptions occur, like I have some clients that have found out when they made a malpractice claim that the patient or the client threw in a claim of gross negligence, and then they went back to their insurance policy and the term gross negligence was in there as an exclusion. So, they said, okay, we’re covering you for normal negligence. But if you are found grossly negligent, your insurance doesn’t cover you any longer. And so, all of a sudden, their insurance company is saying, hey, we’re gonna go ahead and start covering you but at some point, we may not cover you if this is deemed gross negligence. You now have a divergent interest between your insurance company’s defense because they’d actually like to see you held responsible for gross negligence because it gets them out of paying the claim.
So, understanding that insurance is good, but it’s limited in its scope, and an umbrella policy, by the way, is absolutely not an umbrella over everything. It is an increased limit on existing coverage. That’s all it is. So, if you have an auto policy and a home policy and an umbrella policy, the umbrella doesn’t cover anything that is not already covered by your auto policy and your home policy. It just increases the limits. That’s all it does. That’s why they’re cheap. I mean, for you know, $2 million a year, it’s about 1000 bucks a year for an umbrella policy. That’s because they’re not covering any expanded, you know, circle of liabilities, they have just increased the amount that they will cover on already existing coverages.
Asset Protection is totally different. Asset Protection protects the assets. It does not care what kind of liability; it could be from a car accident, it could be from a legal lawsuit and a judgment, it could be a debt from a bank, it could be an IRS obligation. It could be anything. The asset protection takes the asset and says, I’m not focusing on the liability, I’m just taking the asset and moving it to a safe place that makes it either hard or impossible to reach by a court or a creditor. And it has to be done right; it has to be done with very specific guidelines, and we have to do an analysis of its possibility. But one thing to know is that it’s much easier and much more important to do it sooner rather than later.
Right. Cos, I imagine, you know, once a lawsuit gets started, if you start securing those things, the courts don’t look fondly upon that.
Yeah, if you try to create an asset protection structure after you’ve already been notified of the obligation or sued, it’s really difficult, if not fatal, because there’s a concept in law called fraudulent conveyance, which basically says if you convey an asset with an intent to delay, hinder, or defraud a creditor, that conveyance can be reversed. So if there’s one thing I could really impress upon everybody listening, it’s find out if you need asset protection now, before you have a crisis, and if you do, make a decision around what you’re going to do, or how much you want to implement before; do not wait. I have some people go, oh, great, I heard you on Joe’s podcast. So, excited I have this information. If I ever get sued, I’ll call you. That is not the attitude to take. You can’t do it that way. It’s just like in Florida, once they name a hurricane, you can’t get any insurance anymore. It’s the same thing. Once they name a lawsuit, asset protection becomes really problematic.
Ah. Well, I have one more question and then we’ll talk about how people can connect with you. So, Douglass, the last question I always ask is, if every clinician in the world were listening right now, what would you want them to know?
I’d want him to know what I just said. Find out – ignorance is not bliss in this area. And I’ve had a lot of people that later, after they’ve been through a traumatic legal battle, said, if I just knew, if somebody, if my lawyer, my CPA, somebody just told me there was something I could have done about this, that would have changed it. I wish I would have known; I would have done it; it would have changed everything. So, if there’s one thing you can do, it’s call someone like me, get an analysis, understand what you have that’s already protected. In many cases, I get to give the person I’m doing the analysis with the good news that their assets are already protected, the way they’re structured, because there are lots of protections already built in. Retirement plans, qualified retirement plans are already protected under ERISA. If you live in certain states, your home may be fully protected. So sometimes, the good news is, hey, you’re good. You don’t need to do a thing. But from that point on, now they know they’re good. For others, I say, okay, great, this part of your estate is already protected, this part is unprotected and here’s what you can do about it. So, if there’s one thing I’d like everybody to know is, don’t put your head in the sand and say, oh, well, I hope this never happens to me. Call, get an analysis, and then make a choice. Say, hey, this is what I’m gonna do.
Awesome. Well, Douglas, if people want to connect with you, if they want to learn more about getting an analysis, you said that you’re doing it free for our audience – is that correct?
Yeah, that’s correct. There’s normally a fee. But for your audience, Joe, there’s no fee. So if you call and say I heard you on Joe’s podcast, the Practice of the Practice, I’ve already let my staff know to go ahead and schedule it with me at no cost, and the easiest way to do that is to just you can email me personally, [email protected]. And honestly, if you have questions, if this brought up some questions, you just want to email me a question, I’m happy to answer it. You can also go to my website which is just lodmell.com; there’s a ton of information on there, some great videos, lots of explanatory. You can do a lot of research just that way. Or you can call the office and just schedule an analysis right off the bat, and you can reach me at 800-231-7112.
Awesome. Well, Douglass, thank you so much for being on the Practice of the Practice podcast.
My pleasure, Joe.
So I hope that episode really got you thinking a little bit more about just your assets, how you’ve divided them up as you grow your practice, as you grow your business, as you grow your podcast or other things that you’re working on. Separating those out to have some legal kind of differences between them to protect your assets. Also, thanks so much to TherapyNotes. TherapyNotes is the best electronic health record out there. They now have telehealth services through it as well. I’m so excited that that all came together. Especially during kind of the whole quarantine thing, that’s so important. You can get two months for free if you use promo code JOE. And if you’re a Next Level Practice member, you get six months for free when you sign up. And if you’re not a member, we’re opening that back up in August. So that’s over at practiceofthepractice.com/invite. If you’re just getting started with a practice, all the way up to about $100,000, that’s where Next Level Practice is really the best use of your time and money.
So, thanks so much for letting me into your ears and into your brain. Next time on the 25th, so on Thursday, we’re gonna have How to build a sales pipeline. Then, the next Tuesday, we’re going to talk about Sell the way that you buy. And then we’re going to be talking about how six months of therapy in one week, we’re talking the intensives. And then you’re going to get to meet a bunch of our podcasters from the podcast network and you’re going to hear some of their episodes throughout July. So, I’m really excited for that. You’re going to get to meet some amazing people that are doing some amazing work. So, thanks again for letting me into your ears and into your brain. Have a great day.
Special thanks to the band Silence is Sexy for your intro music. We really like it. This podcast is designed to provide accurate, authoritative information in regard to the subject matter covered. It is given with the understanding that neither the host, the publisher, or the guests are rendering legal, accounting, clinical or other professional information. If you want a professional, you should find one.