7 Reasons You Need Asset Lawsuit Protection

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Imagine that you and your best friend own a car washing business as a “hand-shake” partnership. No one details cars like your employees, and over time you have developed a booming business. Part of your service involves picking up vehicles while your customers are at work or shopping to avoid the hassle of having to actually go to your garage.

One day, your employee is driving back to the garage to drop off a car. He is texting while driving and ends up hitting and killing a pedestrian. The family sues the employee, the business, and you – the owners of the business. Now what? Your insurance may help with the legal defense associated with a lawsuit, but the minimal coverage you purchased is not enough for the damages that the pedestrian’s widow needs. Your insurance company fights the legal battle but in the end, they only pay to the maximum amount of the policy. (Insurance companies are notorious for creating loopholes and denying claims.) Now the pedestrian’s family comes after you and your partner’s personal assets. You are forced to declare bankruptcy and virtually everything you worked so hard for is gone.

Although this story is fictional, similar lawsuits happen all the time in America today. It is only wishful thinking to assume that something like that cannot happen to your business. Individuals are not immune either – the driver in the story could have easily been you or a family member. Simple things like your tree falling onto someone else’s property, someone slipping and falling on your sidewalk, or something you said in a moment of anger could also trigger lawsuits. You can never avoid all accidents, and can’t prohibit people from suing you; you can, however, assure you have minimized exposure to your estate through proper legal structuring.

What is Asset Protection Planning?

All of us face varying degrees of risk. Proper legal structuring can help minimize your risk exposure and shield your assets from that risk. Appropriate legal entities can shield your assets from the actions or claims from most any kind of judgment, lien, levy, or lawsuit. When business and personal assets are protected, it is far less likely they will be exposed in a legal battle. Well trained asset protection attorneys and specialists can help you develop a plan to meet your individual needs.

Insurance and asset protection planning are not the same. Although adequate amounts of liability insurance should always be a part of a comprehensive asset protection plan, it should not stop there. Insurance is valuable, but it can only go so far. Many states require minimum insurance protections, but these minimums may not be adequate to cover your assets. Your riskier assets or larger assets may need additional protection.

Why Do I Need Asset Protection?

You may think that asset protection is only something that the extremely wealthy should consider. This is not the case. It is something that everyone who has any assets should consider, regardless of whether or not you own a business. Consider the following situations where proper legal structuring may be useful.

1. Divorce

Let’s face it, a divorce is a form of a lawsuit! Couples often enter a marital relationship and fully expose their pre-marital assets to the debts, obligations, and liabilities of their spouse. However, by planning ahead of time, the financial effects of divorce can be minimized by using asset protection tools like properly drafted trusts, LLCs, corporations, and prenuptial agreements.

2. Involvement in General Partnerships

General partnerships are like handshake deals, the structure is generally not recognized by any state or federal agency and it offers little to no protection for the owners. As an owner, your assets are “up for grabs” any time that the partnership is at risk. That means that creditors can reach your personal assets if the partnership is struggling financially and cannot meet its obligations. If, however, you had used a well-drafted corporation or LLC, your personal asset could be shielded from the debts and actions of the business.

3. Simple Guest Accidents at Home

We live in a litigious society. Even if an invited guest happens to slip and fall on your property, that can lead to a lawsuit. While your homeowners’ insurance may help, it often will not cover everything or will not provide enough coverage. Unfortunately, anyone that has guests on their property runs the risk of getting sued.

4. Malpractice Claims

If you are a professional, you can get sued for malpractice related to your profession. While many people carry malpractice insurance for these types of events, accidents that trigger malpractice lawsuits can be emotionally and financially devastating, reaching far beyond your insurance coverage. In addition, malpractice insurance can be expensive and extremely specific regarding which events it will and will not cover. In situations where insurance coverage is denied or limits are exceeded, your personal assets could be at risk.

5. Owning Risky Assets

Some assets are inherently risky, and thus have a higher likelihood of triggering a lawsuit. For example, if you own a plane, you run the risk of injuring people, damaging property, and triggering legal liability. The same can be said about virtually any vehicle, including boats, ATVs, snowmobiles, etc. Owning commercial real estate, rental properties, heavy equipment, or recreational “toys” can expose you to lawsuits.

6. Service as an Advisory Board Member

When you take on the role of an advisor, you open yourself up to legal liability. Advisory boards do not have many of the legal protections that a board of directors would have, and nothing stops an individual or entity from naming you in a lawsuit.

7. Contract and Business Disputes

Of the 20 million cases that are filed in America each year, 60 percent of them deal with business contract disputes. Anytime your business enters into an agreement, you open the assets of the business to potential liability. Additionally, any breach in the business structure may expose valuable personal assets.

Getting Started with Asset Protection

There are many reasons to engage in asset protection planning. It is an effective way to cut down on the risk associated with everyday activities, whether you are an individual or operating as a business. An asset protection attorney can be an invaluable resource to help you create a plan. You can also use the educational resources at Protect Wealth Academy to learn more and get the process started. Sign up for a free membership today.