A ton of money has come your way: an inheritance or you sold the successful business or a large sum via your prowess from beyond the 3-point arc. It”™s a bona fide Hallmark moment: You”™re having a liquidity event!
Somehow the wealth managers will find you. Those managers will, as Greenwich-based Ray Chodos tells it, need to distinguish themselves.
“When wealth managers want a new client because of a liquidity event””” the quick acquisition of capital ”” “they need to be the prettiest girl in the beauty contest,” Chodos said.
Eventually someone wins the beauty pageant and an agreement is struck. The talk is of faith and of rates of return. The client thinks all is well. Then, the post-liquidity event king or queen of the world, riding high in a Mercedes limo, skids on ice and rear-ends a pickup.
Suddenly, the driver of the pickup is saying, “Hello liquidity event!” and the one-time king or queen is reduced to penury. It happens all the time ”” notably but not uniquely to pro athletes who seemingly routinely lose millions overnight ”” and it is not the financial adviser”™s fault any more than it is the adviser”™s task to point out you could stand to lose a few pounds.
It is Chodos”™ job as principal in Wealth Preservation Group ”” an international consortium of attorneys, accountants and advisers ”” to make you an unappealing target. “What I do is insulate your wealth from those who would involuntarily part you from it,” he said. As such, he tends to receive references ”” 80-85 percent of his business ”” from those who see the books and who know the worth: accountants. (Chodos occasionally works with his son, Adam Chodos, a U. Penn- and Duke-educated lawyer/accountant and Wealth Preservation Group member.)
“Now, let”™s say my Mercedes limo has rear-ended that broken-down pickup truck,” Chodos said. “Does a law firm take the pickup driver”™s case? It might be a good case, but if there are no attachable assets, the law firm does not take the case. And the reason is that once a lawyer takes a case, the judge will usually insist that lawyer must stay with the case. It”™s the attachable assets that make the case attractive to lawyers. It is very easy to find out assets in the public record; things in your name are generally attachable.
“Culpability is important,” he said. “But more important is: Does the defendant have assets? After all, the lawyer has to be paid.”
Chodos said the limo vs. pickup truck scenario takes very different paths if the limo is an entity unto itself. By New York state law, you cannot name an unrelated entity in a lawsuit. “So that means the plaintiff”™s lawyers can go after the car, but they cannot go after, say, your house, which is owned by another L.L.C.
“And what that means is: If you own 15 office buildings, do not make them a single corporation,” he said.
Chodos”™ skill at making people and businesses unattractive to lawsuits keeps him on the move. His fees run from $5,000 to six figures, depending on the complexity of the assets. “I do not look for people; I”™d say 80 to 85 percent of my business comes from CPA recommendations.” In one case, he digested 68 pages of documents ”” “wills, leases, mortgages, divorce agreements” ”” just to figure out what was needed to begin the insulation process. “But at this point, I still know only what they have given me. They might be up to something they”™re not sharing, perhaps illegal activities.”
A recent trip found Chodos in Las Vegas, where the owners of a large roofing company sought his advice. What Chodos found astounded him. “These were respected, confident business people, 66 and 58 years old and worth close to $15 million between them,” he said. “Yet they had everything in a single corporation: equipment, buildings, commercial lots in other states and $3 million in working capital.
“They work with solvents, adhesives ”” both toxic ”” and with flames. These goods have to be transported. And I told them what their exposure was. If adhesive fumes from one of their jobs should seep into a casino, I told them they could be reduced to zero. They told me their accountant had never mentioned this to them. They fired their Nevada accountant and hired one in New Haven.”
On the financial end, the leap to insulation involves a leap from being a standard corporation (C Corp.) into a limited liability corporation (L.L.C.), a move that Chodos delegates to the CPAs. “It can require some complicated gymnastics to accomplish,” he said.
Chodos”™ consultations also involve insurers, with whom Chodos works closely. An anecdote reveals why he is needed.
“It is very common for Canadians to own American businesses in states like New York and Minnesota with their common borders. Now let”™s say the Canadian owner of a truck registered in Ontario is heading to a Canadian-owned business in New York and has an accident in New York. Who pays? The receiver? The sender? Is it ambiguous? What you do not know can definitely hurt you.
“But we do not sell insurance,” he said. “We would not know the right questions to ask. We bring in paid consultants.”
Besides asset insulation, Chodos addresses business succession. He spins a quick tale of multigenerational battles that come from failure to address this vastly under-addressed issue.
“A successful man has a family, he has a business, the children are grown, then he starts another family; it”™s a recipe for litigation.” The answer might be a trust, but Chodos is always circumspect. “There are so many factors,” he said. “That”™s why I can never say to a client that I will take you on for $40,000. The analogy would be a doctor saying I”™m going to take your blood pressure, but I won”™t be listening to your heart.”
Whether for asset insulation or business succession, Chodos allows himself a free rein to investigate, discussing details with insurers, human resources personnel, plant managers and attorneys.
“I need to make them behave like a large company without the expenses of being a large company.”
