Author Topic: What to do with investments with (high) risk of bankruptcy  (Read 3009 times)

Alectejas

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What to do with investments with (high) risk of bankruptcy
« on: January 09, 2015, 08:50:03 AM »
Hello All,

I would appreciate any input on this problem.
Here is the situation: 
I have a high salary of around 300K (or more) per year, my wife stays at home with our 3 young kids. 
We have paid off the mortgage and maxed out my 401(k). 
I'm 45 and live in TX.
We spend less than 50% of our monthly post tax income, leaving a significant amount of post-tax money that I want to invest. 
Here is the issue:
Up to this point I would say that my data is typical for the mustache community.  The problem is that I am a small business owner and have signed a personal guarantee on real estate that we use for the business.  This loan makes me (and my partners) liable for 4 million dollars of real estate debt on a ten year note.  The business is doing fine right now, but there is a chance that things may get tough in the future and depends on lots of factors that are unpredictable and completely out of my control.
The question is what to do with the money I am saving every month?  If if use the most efficient investment option i.e. vanguard mutual fund, I would stand the risk of losing all my investment.  Because I live in Texas, I am thinking of buying a vanguard variable annuity.  I know that variable annuities are generally junk, but an good investment is not going to be worth much if it doesn't belong to me anymore!  In Texas a variable annuity is shielded from the future risk. 
Anyone else in a similar situation?  Any ideas or alternatives?

BarkyardBQ

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Re: What to do with investments with (high) risk of bankruptcy
« Reply #1 on: January 09, 2015, 10:31:51 AM »
Under what organization is your business filed? LLC, Corporation, etc.

In most cases individual retirement accounts are except from bankruptcies and creditors, while other assets like real estate (aside from your residence) and taxable investments can be recalled.

Alectejas

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Re: What to do with investments with (high) risk of bankruptcy
« Reply #2 on: January 09, 2015, 11:28:56 AM »
zdravé:
It's an LLC.  Your point about the other assets being vulnerable is true.  That's why I'm thinking of using an annuity.  In Texas, they are protected from creditors. 

BarkyardBQ

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Re: What to do with investments with (high) risk of bankruptcy
« Reply #3 on: January 09, 2015, 11:48:28 AM »
Looks like you could end up still being personally responsible for corporate, unless you file for personal bankruptcy too. I don't know a lot about bankruptcy but I'm sure there's resources online.

rmendpara

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Re: What to do with investments with (high) risk of bankruptcy
« Reply #4 on: January 09, 2015, 10:35:03 PM »
Don't know a lot about Texas bankruptcy laws, so I'll let someone else help out there.

I'll just add that each year that passes, the risk of bankruptcy decreases (if for no other reason than there is 1 less year for your business to go under). Perhaps start off with a high(er) mix between annuity and "normal" investments (say, 60/40)... and each year move 5% from the annuity contributions into the "normal" bucket. By the 10th year, you'll have sizable assets under both the annuity (if everything goes to shit) and your losses will be mitigated assuming you lose it all.

Given your income and the amount of dough we're talking about, I would seriously pay up for some professional advice. I wouldn't want to lose 5%+ returns for the next decade because I was too stupid to pay a few thousand dollars to get some clear answers (may be far less, who knows)...

TomTX

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Re: What to do with investments with (high) risk of bankruptcy
« Reply #5 on: January 10, 2015, 06:40:32 AM »
So, here's another factor - did you overpay for the real estate, or could you sell it for the $4MM?

For example: did you buy an office building in Midland/Odessa, to support your oil services company? You're probably screwed, since oil has crashed and rigs are being idled.

Or, are you a partner in Firefly Space Systems, building that office outside Austin? You're probably fine. Austin is going to keep growing and demand for cheap launches is huge (if Firefly makes it. They're more aggressive/bleeding edge than SpaceX)

Alectejas

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Re: What to do with investments with (high) risk of bankruptcy
« Reply #6 on: January 10, 2015, 10:13:18 AM »
So, here's another factor - did you overpay for the real estate, or could you sell it for the $4MM?

For example: did you buy an office building in Midland/Odessa, to support your oil services company? You're probably screwed, since oil has crashed and rigs are being idled.

Or, are you a partner in Firefly Space Systems, building that office outside Austin? You're probably fine. Austin is going to keep growing and demand for cheap launches is huge (if Firefly makes it. They're more aggressive/bleeding edge than SpaceX)

The real estate would be very hard to sell (medical office building).  It would also have to be a joint decision on all the partners of the business, so I'm stuck with it for now.

Alectejas

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Re: What to do with investments with (high) risk of bankruptcy
« Reply #7 on: January 10, 2015, 10:15:11 AM »
Don't know a lot about Texas bankruptcy laws, so I'll let someone else help out there.
Given your income and the amount of dough we're talking about, I would seriously pay up for some professional advice. I wouldn't want to lose 5%+ returns for the next decade because I was too stupid to pay a few thousand dollars to get some clear answers (may be far less, who knows)...
Good point