7 Steps For Asset Protection From A Lawsuit

asset protection from lawsuit

In contemporary society, anyone can become prey to a plaintiff who will be seeking to get a monetary judgment against you on a personal level. However, in the present real estate market, where it is mainly impossible to negotiate with the lender, judgments are a major concern. You might have excellent property or car insurance, but a good personal attorney will typically go beyond all the insurance limits and name you as a defendant if the damages are known to be fundamental. 

Owning different types of assets will make you ultimately exposed to a lawsuit invitation. But thanks to the tech world as it is now easy for a creditor to find every real estate property you own. Even your investments can also be traced down through the internet as you might publish your property holdings in the newspaper. Hence, it takes only a few minutes to find out what property you own. 

If you don’t protect your property and assets, which you have worked day and night to accumulate, they can vanish very quickly in a bankruptcy, a lawsuit, or if the creditors come to collect their payment. Hence, it is quite significant to be aware of the strategies for asset protection from a lawsuit. One question often strikes in mind as what assets are protected in a lawsuit? Such assets include building, business assets or commercial assets. Let’s learn some key facts in next heading. 

Key Facts 

● Corporate executives or medical professionals aren’t the only ones who can face a lawsuit and protect their hard-earned assets. 

● Federal laws protect different types of retirement plans, but states in the US also offer asset protection trusts that safeguard annuities, life insurance, and homesteads. 

● There are certain investment accounts such as individual retirement accounts (IRAs), which carry a certain amount of protection for the interest of justice. 

Common Mistakes That Lead To Lawsuits 

Let’s examine a few common mistakes which are committed by business owners or corporate executives that make them exposed to lawsuits. 

● The first mistake is the failure to maintain proper corporate records. If you are a business owner and you have no paperwork regarding corporate affairs, then unfortunately you are exposed to lawsuits. You are risking your business! You must review all your business records to protect them. 

● Another mistake committed by the business owners is waiting too long to begin the planning phase. If you are planning to protect your assets, then you shouldn’t be waiting for legal problems to knock at your door. You can plan the activities keeping in mind Uniform Fraudulent Transfer Act, F.S. 726 which is a true guide for asset protection planning in the most effective way. 

● The last and most important point to be discussed is the transfer to family members or insider mistake. It is a quite seductive approach to give someone entire control of your assets - such as to friends or a family member. But, honestly speaking, it is not a wise solution. You might lose control over your wealth regardless of the trust factor of your family member. 

7 Steps For Asset Protection From A Lawsuit 

There are relatively important 7 steps for asset protection from a lawsuit which are yet simple to be implemented by the organization. Let’s explore further on this; 

Step 1: Start Updating Your Corporate Records And Required Formalities 

It is a common practice of closely held businesses to not keep corporate record books up to date. In an unprecedented event of a lawsuit against an organization, a plaintiff’s attorney can mainly attempt to “pierce a corporate veil”. This implies that the actual meaning of an organization or a corporation will be essentially ignored and the shareholders of the company will personally be liable for corporate debts. Abide by corporate formalities which include, 

● Holding AGM 
● Regular meeting of managers or BOD 
● Avoid mixing corporate or personal assets 
● Keep records up to date 

Step 2: Accounts-Receivable Financing Strategy 

If you are a business owner, you could focus on borrowing against receivables and deposit money into non-business accounts. This would make the assets less attractive to creditors since they are debt-encumbered assets. 

Step 3: Rethink About Joint Accounts 

In case your assets are taken care of by your wife/husband, then after a divorce, the money in joint accounts can be divided equally regardless of the amount contributed. Meanwhile, if your spouse is sued, the entire account will be emptied by the creditors. In such cases, focus on creating separate accounts for you and your partner along with elderly parents, business partners, and children. Or if you have a joint account, then keep funds as minimal as possible. 

Step 4: Retirement Planning 

Retirement accounts are not only a great source of saving money from retirement, they can also help in asset protection from creditors and lawsuits. Moreover, such plans as traditional IRAs or 401 (k) are protected in case you have already filed for bankruptcy. Such laws can vary from state to state, and in the majority of the cases, the retirement plans are out of the plaintiff's and creditors’ reach. 

Step 5: Think Of Investing In Umbrella Insurance 

If you want to enhance your existing insurance policies and avoid liabilities when large claims arise, then you should think of investing in umbrella insurance. This helps you cover sufficient wealth in your retirement accounts, significant savings, rental property, and a paid-for home. 

Step 6: Routine Legal Review Of Business Activities 

It is necessary to review business activities regularly in terms of legal compliance including regulatory requirements and applicable laws. Have you reviewed the employee manual recently? If you face one lawsuit, then it will likely cost you far more than meeting a basic legal compliance review. Hence, it is necessary to have a legal check-up of your business operations. 

Step 7: Review Titling 

To protect your asset, you should review how your asset or property is titled. Owning property such as a home with another person means you both have an equal interest in the asset. 

The Bottom Line On Protecting Your Assets From Lawsuits

If you own assets, then they need protection. Failing to plan for the business could result in a nightmare! By taking into account the above-mentioned steps, you can keep your assets safe and will eventually recover them quickly.

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