In the contemporary age, lawsuits can happen to anyone at any time. In just the United States, about tens of millions of civil cases are filed each year. As Judge Charles Burns points out, the risk of getting sued is especially high for people who work in fields where lawsuits are common like doctors, lawyers, architects, and business owners. Following well-thought-out asset protection strategies can help in shielding the property and possessions, as well as their home and business, from future litigation and would-be creditors.
Judge Charles Burns discusses a few strategies that can help protect assets from lawsuit
There are many professionals and business owners who face the risk of a lawsuit every. Lawsuits can not only cause time and money, but also hamper the reputation of a person. In fact, lawsuits can even put certain businesses out of business. While it might not be possible to avoid every legal claim against a person or their business, but the following practices can surely help:
- Buy enough insurance: A person must invest in adequate insurance coverage both for their own self and their business. After all, it is commonly the first line of defense when it comes to protecting assets. It would be a good idea to work with an expert and make sure that one has sufficient insurance coverage for their cars, home, and other belongings. Business owners must also proactively check and update their commercial general liability coverage. For many, it would additionally be a good idea to buy professional liability insurance and employment practices insurance as well. Before investing in any policy, however, one should definitely read the fine print carefully.
- Rethink marital property: Creditors can force couples to liquidate their jointly held assets in order to collect the share of the debtor. Hence, in certain states, it makes sense to keep the assets protected by signing them over to the spouse. However, there are major drawbacks and limitations to such an approach. For instance, if one ends up divorcing, the divided property may become the subject of disputes. The assets can, in fact, become the property of their spouse. Creditors may go after assets that are held in the name of the spouse, if the debtor still controls them, for instance, by writing checks from a bank account. Such an approach might not work in states with community property laws, where a married couple jointly owns almost everything acquired during the marriage, regardless of who holds the title.
- Set up one or more business entities: When a person owns everything under their own name or the name of a single company, then a lawsuit can result in a catastrophic loss. Hence, it is better to hold the most valuable assets like equipment and real estate, as separate entities. This may require several limited liability companies or trusts. By doing so, only the assets owned by the entity involved in the lawsuit would be at risk.
As Judge Charles Burns says, not all the asset protection strategies discussed above are necessary or appropriate for everyone. But following them can dramatically decrease the losses one would risk in the event of a lawsuit.