If you have substantial assets, come into sudden wealth, or are in a risk-prone business, you really should consider how you can protect your assets against possible lawsuits. Fortunately, there are several ways you can keep your financial holdings secure.
1. Liability Insurance
Your first line of defense against any type of litigation is to have insurance that covers claims. We recommend that you have a personal umbrella liability policy in the amount equal to your net worth. This may provide another big layer of protection if your primary coverage is not enough. If you own a business, the business should also carry adequate liability insurance to protect those assets.
2. Jointly Held Accounts
Any money you deposit in a joint account with children, elderly parents, roommates, business partners, or spouse can be at risk. In short, if the joint owners of any of your accounts file for divorce, incur tax liens, or are involved in a lawsuit, your account is vulnerable.
Depending on your family or martial situation, to protect your assets, you might want to keep your assets separate from your spouse. In many states, a joint account becomes joint property.
If you wish to ensure that only your children from a previous marriage inherit, then a separate account is in order. In the case of a divorce, you could lose a substantial portion of those assets should the money be commingled.
3. Informal Partnerships
You are responsible for the actions of your business partners, so be sure a lawsuit against a partner can’t put all of your assets at risk. You’ll need to create business entities that shield assets. It’s also not a bad idea to compartmentalize your assets. We call this the “silo” technique. For example, an owner of rental properties (rental properties generally carry a high risk of liability) can place each separately leased property in its own LLC or corporation. If one rental results in liability, a creditor will be forced to pursue liability against only one entity and will not be able to reach either the owner or her other properties. Keep in mind, though, that this technique will not shield you from your own personal liability, which is another reason why you need insurance to protect your assets.
4. Property Exemption Laws
Every state shields certain classes of assets through property exemption laws. These laws serve a dual purpose. First, they denote types and amounts of property that are unreachable by creditors. Second, these statutes also denote types and amounts of holdings that cannot be lost by a debtor in bankruptcy.
Learn the laws in Arizona and shield as much as you can. Before thinking about “off-shore” trusts and other such exotic ideas, you should be funding retirement plans and life insurance policies as a first stage to protect your assets.
Protect Your Assets
Protecting your assets now is critical. Too often, attorneys get a call from a client or potential client who has been sued or is about to be sued. At that point, it is often too late. Any transfers at that point are subject to being set aside as a “fraudulent conveyance.” Unless you receive good value for a transfer, if you do it to avoid having to pay a judgment, it is unlikely to stand up in court.
Contact Poulos Law to learn more about how we can hep you protect your assets.