Five Ways to Protect Your Assets from Lawsuits
By: Barry E. Haimo, Esq.
November 18, 2021
A quick internet search reveals that some of the world’s richest people often experience lawsuits that threaten their wealth. The larger your estate, the greater your need to protect your assets from lawsuits.
Bill and Melinda Gates are currently in the public eye for their divorce after 27 years. Dividing up $148 billion dollars in public and private assets — including a massive philanthropic foundation — is no easy feat!
Anyone with a vested interest in their own wealth management should know a handful of ways to safeguard their assets. Remember, there are always potential threats to your hard-earned wealth:
- Liability Lawsuits
- Creditors
- Divorce
- Bankruptcy
These are just the tip of the iceberg. But if you are proactive about your asset protection and armed with the following strategies, you can rest easier.
Obtain Solid Liability Insurance
Have you upgraded your insurance lately? If you haven’t, this is the first step you should take to protect your assets from lawsuits. Many individuals are under-insured without even realizing it.
An adequate “umbrella policy” of liability insurance includes at least automobile insurance and homeowner’s insurance, and ideally covers millions of dollars of potential damages. If you are a business owner, consider increasing the liability coverage on your company’s policy. The greater your wealth, the greater your liability coverage should be in terms of dollars.
Then make sure you understand your policy details, limits, and exclusions so you are not blindsided by an unexpected legal claim. In the event you are sued, the cost of good liability insurance is minimal compared to what you could pay in court without adequate coverage.
Jointly Own Assets
One simple asset protection strategy is to jointly own assets. When you have a lot of wealth accumulated, litigious creditors and claimants may look for any way to get their hands on it. By putting your assets in both your name and in the name of a spouse, family member, or business partner, you create an additional obstacle to creditors. Now instead of seizing a portion of your estate, the creditor shares the assets with that other person.
Then creditors have to file costly legal actions, which make pursuing your assets tedious and less attractive. There are even laws in some states that forbid partitioning jointly held assets and help protect a couple’s belongings.
Open an LLC or Limited Partnerships to Protect Assets from Lawsuits
Similar to jointly owned assets, an LLC or limited partnerships can provide additional protection against money-hungry creditors. If you own or have shares in a business, a properly structured LLC can help protect your personal assets from any liabilities you incur as part of the business.
Additionally, at least in Florida and some other states, creditors can only seize your economic interest in the LLC and cannot take the shares away from you. This is far more desirable than losing the business to a creditor — and provides some leverage in which to negotiate a settlement.
Contribute to Your Retirement Accounts and Life Insurance
Do you have an IRA, 401k, annuity, or life insurance? By contributing regularly to a retirement account or life insurance, you are ensuring those funds receive certain protections against creditors. Employer-administered plans are subject to protection under federal law (ERISA).
Assets in qualifying retirement plans and employee welfare benefit plans, such a 401(k), 403(b) and pension plans cannot be seized by creditors. Only the IRS and spouses can lay claim to these funds.
Establish the Right Kind of Trust
Lastly, you want to have the right kind of trust to ensure your assets are received by your chosen beneficiaries. There are various types of trusts to consider, including:
- Discretionary trusts
- Qualified trusts
- Support trusts
- Personal trusts
Revocable trusts are not helpful in this regard. The key is that your trust be irrevocable and be structured the right way to protect your assets. Creating a trust can be complicated and have multiple steps. Understanding the process and consulting with an attorney can help you establish the right kind of trust for your needs.
It is essential to be proactive when protecting your assets from lawsuits. Unfortunately, many people don’t take thoughtful action until they are facing a legal dilemma. Don’t wait until you are involved with a creditor, bankruptcy, divorce, or civil court case.
When you protect your family, assets, and business, you gain the peace of mind of knowing you’re prepared and in control. Call Haimo Law at 954-228-3369 to get started on your asset protection plan today.
Author:
Barry E. Haimo, Esq.
Haimo Law
Strategic Planning With Purpose®
Email: barry@haimolaw.com
YouTube: http://www.youtube.com/user/haimolawtv
YOU ARE NOT OUR CLIENT UNLESS WE EXECUTE A WRITTEN AGREEMENT TO THAT EFFECT. MOREOVER, THE INFORMATION CONTAINED HEREIN IS INTENDED FOR INFORMATIONAL PURPOSES ONLY. EACH SITUATION IS HIGHLY FACT SPECIFIC AND EXCEPTIONS OFTEN EXIST TO GENERAL RULES. DO NOT RELY ON THIS INFORMATION, AS A CONSULTATION TO UNDERSTAND THE FACTS AND THE CLIENT’S NEEDS AND GOALS IS NECESSARY. ULTIMATELY WE MUST BE RETAINED TO PROVIDE LEGAL ADVICE AND REPRESENTATION. THIS INFORMATION IS PROVIDED AS A COURTESY AND, ACCORDINGLY, DOES NOT CONSTITUTE LEGAL ADVICE.
