Skip to content

How to Protect Your Assets after a Lawsuit

A survey conducted by the American Medical Association in 2018 revealed that more than half of doctors above 55 faced liability charges at least once in their practice.

But not only doctors battle lawsuits. Your car may cause an accident, an employee may sue you for injuries at work, and a creditor may file a lawsuit if you default on payment.

As a result, you may incur losses in costly litigation that deplete your valuable assets.

The best news is that you can fight back using an asset protection strategy. Whether the judge makes a final ruling in favor of the creditor, robust asset protection can work. The key is to identify a tactical strategy, understand how it works, and structure your assets so that creditors will find it hard to claim.

Here, we examine five strategies to shield your assets after a lawsuit.

1.  Asset Protection Trust

Asset protection trusts are particular banks that exist solely to shield personal assets from creditors. They work at the investor’s discretion and offer the strongest shield against property collection.

Trust banks provide two ways of asset safeguarding, namely reversible and irreversible.

A reversible trust makes it possible to negotiate or change the terms. However, it doesn’t guarantee complete protection.

An irreversible trust offers the best protection because it guarantees full coverage for your assets. However, it comes with a set of limitations, such as losing total control of your assets.

For instance, under the agreement, you will temporarily give up legal ownership of the property in return for protection. Thus, you cannot sell or dispose of any asset under trust protection.

2.  Transfer of Property Rights

You may transfer the right to legal ownership of invaluable assets to family members, spouses, and trusted friends. Most states allow you to transfer your property under your spouse’s name. Thus, creditors will have no legal right to collect property that legally belongs to your spouse.

However, some states regulate asset transfer and may hold you responsible for the deliberate transfer of ownership to default on financial obligations.

Secondly, transferring property rights increases your chances of losing the property if you have conflict. For instance, if you or your spouse files for a divorce, you will lose the property because it doesn’t bear your name as the legal owner.

Therefore, to protect your assets from divorce, be sure to draft a formal agreement that distinguishes your assets during a divorce. So as you begin divorce negotiations, both you and your spouse will have a clear idea of your property ownership.

Young happy homeowner couple moving into new house sitting and relaxing on the floor

3.  Separate Entities for Holding Assets

You may consider holding assets in separate business entities if you are in business. Therefore, your assets will be safe from seizure when you borrow credit using business entities following a lawsuit.

For example, a limited liability company has robust protection under the liability laws, where an individual owner is not responsible for the entity’s debts. While a creditor may have a legal claim to your stock in a sole proprietorship, limited liability is different. Your LLC share price or affiliation interests are not liable to liquidation or charges. Additionally, the creditor cannot impose a charge on any of your assets, property, or cash disbursements.

Despite the assurance of LLC protection, the key to successful asset protection is formal operating agreements that include asset protection. An operating agreement can impose limitations, sealing loopholes that creditors may use. A good example is a clause restricting the Third-party acquisition of stakeholders’ interests. The LLC asset protection remains active and binding even after the dissolution of a limited liability company.

4.  Insurance as a War Tool

A robust insurance plan forms part of an asset protection strategy that defends you against legal attacks. Whether you operate an enterprise, work in formal employment, or own vital property such as a car, you require insurance coverage.

A good example is when you own a car jointly as a couple. If your spouse accidentally knocks a pedestrian, both you and your spouse may be liable for the damages. The law assumes responsibility for both the car owner and the driver. Therefore, good asset protection should include liability insurance to protect you from lawsuits.

Similarly, if you are a professional, you may consider signing up for professional liability protection. It covers any losses you incur in business and pays any injured parties, covering your assets against lawsuits.

5.  Offshore Protections

You can move financial assets to a different state or away from the US jurisdiction courts if your state exemptions are insufficient for asset protection. The strategy works well if you invest in limited liability companies or financial trusts where foreign managers or trustees are. However, offshore asset protection is usually a last resort since it is expensive.

Asset Protection: What Is Your Strategy?

Are you worried about losing invaluable assets from a legal suit? The truth is, you are safer using an asset protection strategy.

You may secure protection from an asset trust, transfer your property rights to a trusted friend, or invest in separate business entities. Alternatively, you may sign up for insurance liability cover or stock your assets in an offshore account.

Regardless of your choice, be sure to incorporate an asset protection attorney to guide you through the legal processes of asset protection.

Find The Right Mortgage

For more than 20 years, Phil have been helping customers achieve their home purchase and refinance goals by providing them with invaluable resources and support.

Schedule a FREE Consultation
Phil Ganz

Subscribe to Get Your First Time Homebuyer Checklist

Sign up for the weekly newsletter to stay up to date on the latest real estate market trends, loan news, and so much more!