Introduction
Entrepreneurs and the self-employed work hard for their success – which makes it all the more important to protect that hard-earned wealth effectively. Asset protection encompasses every strategy used to shield business and private assets from risks and from the reach of third parties. Why is this so essential precisely for entrepreneurs? On the one hand, business owners face a wide range of liability and life risks in daily practice – from economic downturns and creditor claims to litigation or private crises such as divorce or illness. On the other hand, employees can at least rely on certain state safety nets, whereas entrepreneurs must arrange their own provision and protection. Add to this that anyone running a company has often invested the bulk of their wealth in the business. If the company runs into trouble, the private financial cushion is quickly at risk too, unless it is protected.
Important: Effective asset protection must be approached proactively – that is, before the worst case occurs. “Serious asset protection can only ever be carried out prophylactically, in advance of a potential liability,” as one specialist firm aptly stresses. So do not wait until a crisis looms. The following chapters show which strategies and tools are available to entrepreneurs to safeguard their business and private assets against various threats. This comprehensive guide is aimed specifically at entrepreneurs and the self-employed with an interest in protection, and offers proven fundamentals as well as further perspectives and legal background. The goal is to give you a clear overview – from choosing the optimal legal form through holding structures, foundations, divorce protection and succession planning to international solutions – so that you can subsequently plan your next steps well informed. And should you wish for professional support, you will find notes along the way on how and where to obtain it.
1. Recognising the dangers: why asset protection is indispensable for entrepreneurs
Entrepreneurial wealth is exposed to a wide range of risks. In business life, unforeseen developments can arise at any time: a key client becomes insolvent and fails to pay, a product causes liability damage, litigation with a competitor looms – or economic crises cause profits to collapse. In such cases, the business assets are the first thing at stake. But without precautions, your private assets can quickly be affected too, whether through personal liability or because you have to inject private money into the firm. Many entrepreneurs underestimate this risk. Anyone who fails to draw a clear line between business and private assets risks “losing everything” in an emergency.
There are dangers to your wealth in private life too: divorce, for example, can become a financial ordeal without a marriage contract, when equalisation of accrued gains (Zugewinnausgleich) and maintenance skim off substantial assets. Family disputes over inheritances (the keyword being compulsory share / forced heirship claims) can threaten the survival of a family business. Creditors could – for instance after a personal guarantee – reach for your house and savings. And even the state represents a potential risk: the keyword being state intervention. In the past there have been discussions, for example, about wealth levies or the introduction of a Europe-wide asset register. Such measures (the Lastenausgleichsgesetz – German Burden-Sharing Act – and the like) remain a matter for the future for now, but concern over political access to private wealth is growing.
In short: a great deal is at stake for entrepreneurs, both commercially and privately. Asset protection is therefore not a “nice to have” but indispensable in order to secure what has been achieved. A recent survey shows that more than two thirds of entrepreneurs now actively take asset-protection measures, because tax and legal risks are increasingly perceived as a threat. If you have not yet given this any thought, now is the right time to begin.
Example: Imagine you run a successful mid-sized company as a sole trader. Your business assets and private assets are not legally separated. Suddenly a serious product defect leads to multi-million claims for damages. As a sole trader you have unlimited liability – so creditors could not only empty the company account but also reach for your private home, your private account and other personal assets. If, by contrast, your business had been brought into a GmbH and your private wealth structured, for example, through clever contracts or a foundation, the situation would look different: liability would largely be confined to the company’s assets and personal property would be largely protected. This scenario illustrates how decisive preventive asset protection can be.
2. Choice of legal form: laying the foundation of asset protection
One of the first and most important decisions for entrepreneurs is the choice of the right legal form for their business activities. It forms the foundation for all further asset protection. Out of ignorance, many entrepreneurs start as sole traders or in a partnership (GbR, OHG, etc.) because it is uncomplicated. But this choice has a major drawback: you are then liable with your entire private assets for all of the company’s debts. In the wrong legal form, a single bad decision or an unfortunate turn of events can jeopardise your private livelihood.
Corporations as a shield: it is often better to form a corporation – in Germany typically a GmbH (limited liability company). With a GmbH, the shareholder’s liability is limited by law to the company’s assets. If the GmbH becomes insolvent or is sued, it is not you personally who is liable, but only the company’s assets. Your private bank account, your house and so on remain untouchable. This liability protection is a fundamental building block of asset protection: it creates a clear barrier between your company and your private property.
Of course, forming and running a GmbH involves some effort (share capital, notarial incorporation, annual reports), but from an asset-protection perspective it is usually worth the trouble. In particular, if you operate with higher risks or with loans, you should never act without limited liability. There are various legal forms in Germany and internationally offering similar protection (UG with limited liability, AG, Ltd., etc.), but the GmbH is the proven standard.
Note: a GmbH protects against operational liability risks, but not against every eventuality. For example, the managing directors of a GmbH must observe certain duties – in cases of serious breaches (such as tax evasion or gross negligence) personal liability can still arise. You are likewise personally liable if you have signed guarantees for company loans. Even so, choosing a corporate legal form is the first step towards shielding your private assets.
3. Holding structures: double protection and tax advantages
The GmbH on its own is good, but it can be done even better: holding structures are a particularly effective trick for entrepreneurs who want to combine asset protection with tax optimisation. Put simply, a holding company is a parent company beneath which one or more subsidiaries (such as your operating GmbH) sit. The holding itself can be, for example, a holding GmbH or another legal form. Why does this make sense?
- Liability and asset protection: suppose you set up a holding GmbH as the parent and the operating company becomes its 100% subsidiary. The operating GmbH runs the day-to-day business and can take on risks, while the holding mainly performs ownership functions (e.g. holding real estate, profits, participations). If the operating unit runs into difficulties, the assets within the holding remain unaffected. Profits can be passed up to the holding before a crisis arises. Should the subsidiary become insolvent, the wealth accumulated in the holding (apart from the invested share capital) is protected from the reach of the subsidiary’s creditors. In this way you secure not only your private assets but also the company profits already earned.
- Tax savings on profit distributions: the holding structure brings considerable tax advantages. Profit distributions from a corporation to its parent company are 95% tax-exempt in Germany (§ 8b KStG – German Corporation Tax Act). In plain terms: if your operating GmbH makes a profit and distributes it to the holding, 95% of it is spared corporation tax and trade tax – almost tax-free within the group. Example: the subsidiary GmbH distributes €100,000 of profit to the holding GmbH. In the holding only €5,000 of this is taxable; €95,000 can be reinvested. As long as the money stays in the holding or is reinvested within the group, hardly any tax is incurred. Only when you withdraw it privately (e.g. as a dividend to you as a shareholder of the holding) does normal taxation apply. Conclusion: the holding makes it possible to accumulate retained profits and channel them back into growth without the tax authorities taking their cut immediately. This accelerates wealth accumulation considerably.
- Flexibility and separation of different business areas: with a holding you can run different business areas or assets in separate subsidiaries. This isolates risks from one another. Example: alongside your core business you also own real estate that you let. You could hive this off into its own subsidiary GmbH. Your property assets would then be protected from any liability problems of the operating business – and vice versa. A holding also makes succession arrangements easier (you can, for example, sell the subsidiaries separately or transfer them to different heirs).
It is no wonder that experts describe the combination of GmbH + holding as a “game changer” for entrepreneurs. Nevertheless, according to one study, over 60% of entrepreneurs are not sufficiently aware of the advantages of a holding structure. Here it pays to obtain legal and tax advice. Our note: consider whether the size and earning power of your company justify building a holding structure. Above a certain level of profit and asset substance, the tax advantages in particular can clearly outweigh the ongoing costs of such an arrangement.
Call to action: Wondering how to implement a holding in concrete terms and whether it is worthwhile in your case? Seek advice from a specialist lawyer for company law and a tax advisor to tailor an optimal holding structure. Feel free to contact us for an initial consultation in which we explore your options and can also discuss any international arrangements (e.g. a foreign holding).
4. Separating business and private assets: what belongs where?
A central principle of asset protection is: segment your wealth, separate your liability areas. Picture the overall image of your assets as a jigsaw with various pieces – the more strongly you delineate these pieces from one another, the harder it is for a single loss event to destroy the whole picture at once. The choice of legal form and holding arrangement are already steps in this direction. Beyond that, you should consider which assets are better kept in the business and which belong in private hands (or are even hived off into third structures).
Detaching private assets from the business: entrepreneurs often hold assets in the firm that are not really best placed there – e.g. real estate, securities portfolios or large amounts of liquid funds. These count as business assets and can be lost in the event of insolvency or litigation. They can also create tax disadvantages (e.g. trade tax on rental income from a business property). It is often better to transfer such assets into separate, protected areas. This could mean hiving real estate off into a property GmbH (a subsidiary of the holding) or holding it directly in private hands or in an asset-managing family company. Liquidity reserves, in turn, could go to the holding in the form of distributable profits (where they are safer than in the operating unit) or flow into special investment vehicles that are insolvency-protected (more on this later).
Keep business and private matters strictly separate: many owners withdraw money from their business fairly informally or pay private bills through the firm. That may be convenient, but it blurs the line between firm and private. In the worst case, an insolvency administrator could argue that your conduct encourages piercing-the-corporate-veil liability (the keyword being commingling of assets). So keep clean accounts: pay yourself an appropriate salary or profit shares and meet private expenses from your private account. Conversely, you should not handle private investments through the company account. In short: two wallets – two worlds. Keep business and private assets financially and legally apart.
Deliberately “de-encumber” private assets: consider which parts of your private wealth would be unprotected in a crisis. Cash, account balances, freely available portfolios or directly held real estate are in principle subject to seizure if creditors come after you with an enforceable title. There are, however, recognised constructions for placing parts of private wealth beyond reach. These include, for example, life insurance or annuity policies that are protected from seizure within certain limits, or permanent foundations that can bring you benefit yet legally constitute a separate person (more on this in section 6). Even carefully structured gifts to family members can bring private assets to safety, provided you reserve rights of recovery that creditors cannot touch. Such steps should, however, be carried out long before a crisis – we remind you of the importance of being proactive.
Interim conclusion: review your current asset portfolio: which values are in the firing line if something happens to your company? Are there private assets that could be lost in the event of personal liability? Everything that matters to you belongs in protected vessels. This brings us to the special structuring instruments of asset protection.
5. Special structuring instruments: using foundations, trusts & co.
Alongside the basic structures (GmbH, holding), there are advanced legal tools for protecting wealth. These are often used where larger assets or family wealth are involved, and some offer lifelong or even cross-generational protection. Here is an overview of the key instruments:
5.1 The family company or foundation
Family company: instead of distributing wealth among individuals, it can sometimes make sense to form an internal family company (e.g. a GmbH or GmbH & Co. KG) in which all family members hold a stake. The family wealth (such as real estate, securities, business participations) is then brought into this company. Advantages: the company offers liability protection, clear voting arrangements and can be structured so that shares are difficult to seize or sell (e.g. through transfer restrictions or low settlement claims for departing shareholders). In this way the wealth is preserved as a unit and withdrawn from the direct reach of outsiders. Family companies are especially popular for bundling, say, real estate assets of several generations and protecting them from fragmentation.
Foundation: a family foundation goes one step further. Here you transfer assets to a foundation that pursues a particular purpose – usually the welfare of family members. What is special: a foundation is legally independent and owns itself. No one holds shares in it. Once you have brought your wealth into a foundation, it passes into the foundation’s ownership – thereby removing it from your personal liability and also from future inheritance events. Neither creditors nor relatives by marriage (sons- or daughters-in-law) can reach the foundation’s assets. Even in the event of divorce or compulsory-share claims, the wealth in the foundation remains untouched. The foundation typically “lives” on forever; it pays out only income (e.g. annual distributions) to the beneficiaries, not the underlying capital. A family foundation thus secures long-term asset protection across generations. It is suitable, for example, for preserving a family business, real estate or financial wealth beyond your own lifetime.
You will find more details on the family foundation in our article on foundations.
Practical tip: foundations are advice-intensive and their usefulness depends on the specific objectives. In Germany there are high requirements for charitable status, if tax advantages are sought, and strict supervision. A foundation abroad can be more flexible (a prominent example is Liechtenstein, known for its stable and business-friendly foundation and insurance solutions). There are also foundation & Co. KG constructions or foundation holdings that combine the benefits. This is high structuring artistry – here you should absolutely bring in experts. But used correctly, foundations offer almost ultimate asset protection: neither divorce nor inheritance dispute nor your own insolvency can touch wealth once it has been endowed.
5.2 Trusts and foreign asset-protection vehicles
In the Anglo-American world, trusts are common – a similar idea to the foundation, but more flexible. A trust is a fiduciary relationship in which a trustee administers assets for certain beneficiaries. German law does not recognise common law trusts as such, but German entrepreneurs can use trusts abroad (for example in Liechtenstein, the USA or other trust-friendly jurisdictions). The aim is always to detach assets from the personal sphere of access and thereby protect them from creditors or the tax authorities (legally, of course). Some countries offer special asset protection trusts that are untouchable within certain limits, provided they were set up in good time.
An example: a Liechtenstein life insurance policy (“Private Wealth Policy”) as a wealth wrapper. As described in the article from the hospitality-industry magazine, a particular form of unit-linked life insurance can be used to invest wealth internationally diversified and protect it at the same time. Liechtenstein has the advantage of not falling under EU banking rules while still being integrated into the European Economic Area – it is regarded as an extremely safe financial centre (AAA rating, no national debt). Money you invest in such a policy is held by the insurer only on a fiduciary basis; legally it belongs to the insurer’s so-called cover pool. This is segregated assets and, in the event of the insurer’s insolvency, is reserved preferentially for the policyholders. More importantly still: you can designate irrevocable beneficiaries. That is, in the policy contract you stipulate, for example, that your wife or your children are to receive the payouts irrevocably – and indeed even before your death. As a result, the wealth in the contract is withdrawn from you personally – creditors cannot reach it, since the payouts flow to someone else. This wealth likewise does not fall into your divorce or insolvency estate. In essence, you thereby have a legal, asset-protection-optimised foreign trust arrangement. Such constructions are complex, but they illustrate the point: international diversification and clever vehicles can draw the safety net around your wealth even more tightly.
Caution: not every glittering offshore solution delivers what it promises. Models that were once popular (the keyword being the flag theory, offshore shell companies, etc.) are today partly outdated and have been legally closed off. The “ten-flags strategy” of some wealth advisors – spreading residence, passport, companies, bank accounts, insurance and so on across ten countries to achieve maximum freedom – may work for the ultra-wealthy, but it is overkill for most entrepreneurs. What matters is the principle behind it: spread your wealth geographically and legally to make it robust. A balanced international set-up (e.g. real estate in various countries, accounts in stable jurisdictions, a holding abroad, part of your liquid wealth in a secure foreign policy or foundation) can protect against problems in your home country – be they economic, political or legal. You will find further information on trusts in our comprehensive article.
6. Protection against private life risks: divorce, inheritance and the like
It is not only business risks that can hit entrepreneurs financially – family events such as divorce or inheritance also carry explosive potential for your wealth. The asset-protection strategy therefore always includes a look at family law and inheritance law.
6.1 Marriage contracts and divorce protection
The divorce rate is high, and especially in entrepreneurs’ marriages there is often a great deal of money at stake. Without a special contract, the statutory rule in Germany is usually the equalisation of accrued gains (Zugewinnausgleich): whatever wealth is added during the marriage is, broadly speaking, split in half in the event of divorce. For an entrepreneur this can be fatal if the value of the business has risen sharply – the ex-partner would be entitled to half of this increase in value, even though the money is tied up in the company! In the worst case, the business has to be broken up or sold to satisfy the claim.
Marriage contract: here a marriage contract provides a remedy. It can stipulate, for example, separation of property (no equalisation claim) or exclude certain assets from equalisation (such as company shares, real estate, or assets held before the marriage). Changes of matrimonial property regime during the marriage – such as a temporary separation of property followed by re-establishment of the statutory regime shortly before divorce (the so-called matrimonial-regime swing, Güterstandsschaukel) – are also legally possible and are sometimes used to transfer wealth tax-free and minimise compulsory-share claims. What makes sense in detail depends on the individual case. One thing is clear: entrepreneurs should consider a marriage contract early on, ideally before the wedding. Once you are in divorce proceedings without contractual provision, hardly any protection remains. Besides excluding equalisation of gains, a marriage contract can also regulate maintenance and pension equalisation in order to make the financial consequences of a separation more predictable.
Tip: raise the subject of a marriage contract openly with your partner – it is not about mistrust, but about mutual protection and a fair settlement. Especially where family businesses are involved (where the older generation may also want a say), a marriage contract is almost a must.
6.2 Will, succession planning and inheritance protection
Succession planning overlaps with asset protection, because an uncontrolled inheritance can tear apart wealth that has been built up. Examples: if the entrepreneur dies without a clear arrangement, several relatives may inherit the company shares jointly – conflict or break-up looms. Or there are children entitled to a compulsory share who are not in the business and, upon inheritance, immediately demand cash from the estate, which overwhelms the firm in liquidity terms.
Will / articles of association: through a tailored will, business succession can be regulated: determining, for example, who is to receive the company shares, and making any provisions where appropriate (prior and subsequent heirship, execution of the will). You can also direct that an executor (e.g. a professional) continue or sell the business after your death in order to avoid chaos. Coordination with the company’s articles of association is also important: these can contain pre-emption rights for co-shareholders, succession clauses or settlement rules that take effect on inheritance. All of this should be arranged so that the business is not torn apart and no inheritance disputes endanger the wealth.
Reducing the compulsory share: in Germany, the closest relatives (children, spouses) have mandatory minimum entitlements. But there are arrangements to reduce the compulsory share – e.g. by making gifts early (after 10 years these drop out of the compulsory-share calculation) or by transferring assets into a foundation (foundations are not relevant to the compulsory share, since the heirs do not inherit the wealth directly from the testator). So-called permanent execution of the will can also help: here a permanent administrator of the estate is appointed by will, so that the heirs are indeed benefited but cannot dispose of the wealth directly – which makes access more difficult for the heirs’ own creditors. Such mechanisms are complex but effective in protecting family wealth from, say, wasteful descendants or the heirs’ creditors.
Entrepreneur’s will: for entrepreneurs there are special structuring concepts (the keyword being the entrepreneur’s will) that take all of this into account: continuation of the business, inheritance quotas, compulsory-share management, tax-optimised transfer (the keyword being making use of gift-tax and inheritance-tax allowances). Company-law contracts, wills and insurance often come together here. The goal is for the transition to the next generation to run smoothly, to be tax-privileged and for no part of the wealth to be needlessly lost. Here lawyers, tax advisors and notaries work hand in hand to build the best possible solution.
Succession and inheritance planning in particular is highly complex for entrepreneurs. Do not hesitate to call in expert legal advice – ideally several years before a generational change is due. Our firm has experienced experts in inheritance law and business succession. We help you draw up a watertight concept so that your life’s work passes into the right hands and is maximally protected in doing so. Talk to us about individual succession planning!
7. Risk management and insurance: securing livelihoods
Holistic asset protection also includes classic risk management: recognising, avoiding, reducing or outsourcing risks. The last of these is often done through insurance. Entrepreneurs should carry out a risk check regularly: which events could cause my company, or me privately, massive financial harm? And how can I make provision?
Managing operational risks: many disciplines come into play here – from compliance (observing laws to avoid penalties) and occupational safety (to prevent liability for accidents) to contract drafting (to limit liability cases through clever contractual clauses). Make sure your firm has the key points covered: are there, for example, liability limitations in your terms and conditions or client contracts? How is the liability of the managing directors regulated contractually (the keyword being internal liability, recourse in cases of intent or gross fault)? Do you have a system for keeping track of legal changes (data protection, tax legislation, etc.)? Such measures sound dry, but they can avert potential crises before they arise. Remember: a scandal or legal breach in the company can ultimately threaten your private assets too, for instance if laws are broken and you, as managing director, are held to account.
Key insurance policies for entrepreneurs:
- Business liability insurance: covers third-party claims for damages arising from your business operations (personal injury or property damage, product defects, etc.). Indispensable, so you do not have to pay yourself in an emergency.
- Professional indemnity / financial-loss liability: important for advisory professions (e.g. architects, lawyers, consultants) – it applies where a mistake on your part causes a client financial loss.
- D&O insurance (directors’ and officers’ liability): protects managing directors / board members from the financial consequences of mistakes in running the company. If you are a GmbH managing director, the company should take out a D&O policy so that your private assets are not on the line should you be blamed for a management error.
- Key-person insurance: if your company depends heavily on individuals (e.g. on you as the owner), a key-man life or occupational-disability policy can financially cushion the firm if that person is lost or dies. This preserves the company’s value and at the same time protects your family.
- Legal-expenses insurance: useful both commercially and privately, to cover lawyers’ and court costs. It does not prevent loss, but it ensures that you can assert your rights without ruinous costs.
- Private insurance: as an entrepreneur you should pay particular attention to occupational-disability insurance (in case you can no longer work yourself and have no statutory cover) and adequate health and long-term-care insurance. Private third-party liability insurance is also an absolute must – it costs little and protects your private assets against everyday mishaps. Anyone with a family should consider term life insurance.
Spreading risk in financial investments: alongside insurance, diversifying your investments is an important part of risk management. Do not invest only in your own company! However much you believe in your firm – never put all your eggs in one basket. Build a private investment portfolio (securities, real estate, participations, precious metals, etc.) that is independent of your business’s fate. Many entrepreneurs make the mistake of ploughing all profits back into their own company for decades. That can bring growth, but it also increases vulnerability. It is better to withdraw profits regularly and invest them externally. That way you have a cushion when it matters, even if the company falters.
Emergency plans: last but not least: have you made provision for the absolute emergency (accident, sudden death)? Every entrepreneur should have an emergency folder containing all the important information: from bank access details and powers of attorney to a detailed plan of “what to do if something happens to me”. Name deputies who can take over on an interim basis, and brief your family. This ensures that, in an emergency, chaos does not break out and assets do not lie idle or get mishandled.
8. Tax planning and optimisation: legally keeping more of your wealth
Taxes are not an “external” loss event, but a foreseeable outflow. Yet they deserve their own attention here, because an intelligent tax strategy is a key to protecting and growing wealth. Every euro you legally save in tax remains part of your wealth and can keep working for you (the keyword being compound interest).
Tax optimisation within the company: as an entrepreneur you have many levers. A few examples:
- Choosing the legal form for tax reasons: it makes a difference not only for liability but also for tax whether you operate as a sole trader (income tax up to 45% + trade tax) or in a corporation (a flat 30% tax rate on profits, but tax again on withdrawals). Certain constructions (e.g. GmbH & Co. KG) combine the advantages. Find the best solution for you together with your tax advisor.
- Retention vs. withdrawal: leave profits in the company (or in the holding) as long as you do not need them privately. In a corporation, retained profits are taxed at about 30%; withdrawn profits (dividends) are again subject to the flat-rate withholding tax (25%). If instead you retain and reinvest, the wealth continues to grow gross – considerably more effective. The compound-interest effect means that an amount of tax saved initially brings many times the additional wealth over the years.
- Optimal distribution and withdrawal planning: withdrawals should be timed and structured cleverly. For example, with a GmbH holding structure you can decide when and how much you distribute from the holding to yourself privately – say, in years when your personal tax rate is low – or you use routes other than dividends (e.g. loan repayments, salary, bonuses) depending on the tax position. Tax advice helps you optimise legally here.
- Making optimal use of business expenses: make use of all the structuring scope available with business expenses, retirement provision for managing directors (support funds, pension commitments), company-car arrangements and so on, in order to build assets tax-efficiently. For example, a GmbH can finance a direct insurance policy for you as a shareholder-managing director – this reduces profit taxes and secures retirement capital for you.
International tax strategies: if your company operates globally or you have plans to emigrate, international tax models can be part of asset protection (always staying legal, however – we are not talking about tax evasion, but about permissible tax avoidance). The classic flag theory held: residence in a country with low income tax, holding in a country with a territorial tax system, profits in a country with low corporation tax, bank account in a safe third country, and so on. In times of automatic exchange of information and substance requirements, such models have become more burdensome, but wealthy entrepreneurs can certainly save tax through a clever choice of location. For example, countries such as Switzerland, Singapore, Dubai or Liechtenstein offer attractive conditions for wealthy newcomers (lump-sum taxation, no inheritance tax, no wealth tax, etc.). There are options within the EU too (Portugal with its Non-Habitual Resident status, Cyprus, Malta, etc.). Important: such steps have to fit the overall picture – a move purely for tax reasons can increase other risks (political stability, legal certainty, distance from the company). Even so, it is worth at least being aware of this international perspective once your wealth has reached a certain size.
Warding off tax “risks”: one aspect of asset protection is also avoiding back taxes or penalties. Nothing can decimate your wealth faster than tax criminal proceedings or high back payments plus interest. Therefore: keep your tax compliance impeccable. Use legal loopholes, but do not cross the line into illegality. When in doubt, structure things transparently and obtain binding rulings in advance. A popular maxim runs: “The best way to save tax is through structuring, not through a fight with the tax office.”
9. Checklist: steps to asset protection for entrepreneurs
To conclude this guide, here is a compact checklist to help you, as an entrepreneur or freelancer, approach your asset-protection concept systematically:
- Carry out a status analysis: take stock of your current assets (business & private). Identify risks: where are you liable? What happens in the event of insolvency / divorce / inheritance? Are there concentration risks (e.g. all your money in the firm or only in one asset class)?
- Choose a suitable legal form: review your current company form. Switch to a GmbH or another limited-liability form, if you have not already. Consider whether a holding structure offers advantages (with high profits, investment plans, reserves to be protected).
- Separate private and business assets: transfer dispensable assets out of the firm into private hands or into separate companies (e.g. real estate, liquid funds). Conversely, make sure that private matters are not needlessly in the firing line (no private guarantees without need, no commingling of assets).
- Conclude a marriage / family contract: where relevant, have a marriage contract drawn up to protect your business and assets in the event of divorce. Where appropriate, also make arrangements with other family members if you work with parents/siblings or have financial relationships with them.
- Settle succession and will: draw up or update an entrepreneur’s will. Clearly regulate who gets what, and use instruments (prior/subsequent heirship, execution of the will) to preserve your life’s work. Factor in gifts or foundations where it makes sense for tax and family reasons.
- Use protective companies: consider forming a family company or foundation to hold family wealth together. If your wealth is large and your family is complex, this could create lasting peace and security.
- Review insurance cover: carry out an all-round check with your insurance broker. Do you have all the essential business policies (liability, D&O, etc.)? How are you personally covered (occupational disability, daily sickness benefit, life, etc.)? Close any gaps where necessary.
- Diversify – by content and geography: spread your investment assets across various asset classes (equities, real estate, gold, funds, possibly crypto assets) and – depending on the size of your wealth – across different countries/banks. Do not place everything with one bank or in one country. Where appropriate, use foreign structures (holding, insurance, trust) if they offer you added protection.
- Optimise your tax strategy: plan your taxes long-term. Work with a tax advisor who specialises in structuring advice. Use all legal options (allowances, depreciation, corporate constructions). Think about inheritance tax too: take measures in good time (make use of the relief for business assets, stagger gifts, etc.).
- Emergency planning & regular updates: create an emergency folder with instructions for the event that you are incapacitated. Train your successors or deputies. Review your asset-protection concept every 1–2 years or upon major changes (marriage, birth of children, changes in the law, expansion abroad), and adapt it.
This checklist cannot, of course, replace individual advice, but it provides a road map. Prioritise the points according to your personal situation – you should act first where the biggest gaps are.
10. Frequently asked questions (FAQ) on asset protection
When should I start asset protection as an entrepreneur?
Ideally at once, right from the start. The earlier you make provision, the better. Many entrepreneurs put the subject off because it seems abstract – often until shortly before retirement or until problems arise. That is risky. As early as the founding of your company, you should think about liability and protection (legal form, insurance). But it is never too late later on either: start now to make your wealth crisis-proof, step by step. The important thing is that asset-protection measures can only ever be effectively implemented before a loss event occurs. Once the lawsuit, insolvency or divorce is already here, it is usually too late. So: plan early – your future self will thank you for it.
Do I really need a holding or a foundation? My business is not that big.
That depends on your individual situation. Not every small business needs a complex holding structure or a family foundation straight away. These instruments are worthwhile where there are correspondingly large assets and risks: take the holding – if your company already generates higher profits that you want to reinvest, or if you want to protect a lot of company wealth (e.g. real estate, cash reserves), a holding makes sense. For a small business with modest surpluses, the effort would outweigh the benefit. It is similar with foundations: they are usually only an option from larger seven-figure assets upwards, in order to deliver real added value. There are, however, simplified solutions too: an asset-managing GmbH (a kind of mini-holding for your securities/real estate) can be worthwhile, for example, if you regularly invest surpluses. Conclusion: scale the tools to suit the size of your company. Seek advice on what is appropriate for your business model and wealth. There are often intermediate solutions that are cheaper and still offer protection.
Is asset protection even legal? It sounds like “hiding money”…
Yes, absolutely – serious asset protection is legal. It is not about hiding wealth or cheating legitimate creditors. Rather, one uses the statutory possibilities to bring one’s property into legally secure structures. This is forward-looking structuring, comparable to legal tax planning. The important thing is: you must not overstep the mark. Anyone who, for example, quickly whisks assets away shortly before a foreseeable insolvency risks criminal liability (delaying insolvency, disadvantaging creditors). Tax evasion is likewise not asset protection but illegal. The measures described in this article – from forming a GmbH through a marriage contract to a foundation – are without exception permitted and common practices, provided they are correctly implemented. Lawyers and courts often work with these concepts themselves (e.g. many court judgments recognise that a properly established trust or family foundation effectively protects assets from access). In short: legal asset protection exhausts the scope of the law without leaving it. It is best to have professionals accompany you in this, so that you are on safe ground.
Who do I turn to for professional asset-protection advice?
Asset protection, as we have seen, is interdisciplinary. It touches on company law, tax law, family law, inheritance law, insurance and investment matters. Accordingly, you should choose an advisor who thinks holistically and knows the interfaces. Typically, specialist lawyers for tax law or inheritance law who also have knowledge of company law come into consideration – or firms that unite a team of experts (tax advisors, lawyers from various fields) under one roof. Some wealth-management boutiques and family offices also offer asset-protection advice, although legal matters are then usually resolved with external lawyers. The important thing is that you have someone who understands your overall picture and does not just look at one aspect in isolation. Our firm, for example, specialises in precisely such arrangements – we look at your situation comprehensively and, in consultation with you and, where appropriate, your tax advisor, develop a coherent protection concept. So look specifically for an “expert in asset protection” with demonstrable experience. And make sure that the person earns your trust – after all, this is about your life’s work. It is best to arrange a non-binding initial consultation to see whether the chemistry is right and whether all the relevant topics can be covered.
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Conclusion: asset protection for entrepreneurs is not a one-off project but a continuous process. The framework conditions – legal, tax, private – are constantly changing. What is optimal today may need adjustment in five years. The decisive thing is that you start protecting your wealth actively at all. The measures presented in this article range from a solid basic framework (GmbH, holding, insurance) to sophisticated strategies (foundation, trust, Liechtenstein policy). Not everyone needs the full programme, but everyone can do something to reduce their risk. Take the building blocks that suit you and build your personal protective shield. That way you sleep more soundly – and can devote yourself again, with a clear conscience, to what you do best: your entrepreneurial success, without constantly having to fear for your savings.
We are glad to support you on this path. Whether it is about choosing the ideal structure, drafting a watertight marriage or shareholders’ agreement, or creative solutions for complex assets: contact us for individual advice. In a confidential conversation we analyse your situation and show you concretely how you can secure and grow your wealth sustainably – so that you are equipped for every eventuality and the fruits of your labour remain in good hands.
