The American legal system is a useful vehicle for righting people’s wrongs: If your dog bites me and I am seriously injured, I can sue you for medical bills, pain and suffering, etc. That is fair and just. But, our legal system is also overused and abused. Frivolous lawsuits are filed frequently, and sometimes they succeed.
You don’t want to be on the losing side of that frivolous lawsuit, especially if you are lucky enough to have assets to lose. So how do you make sure that in our litigious-leaning society, your assets are protected?
Unfortunately there is no way to 100% absolutely guarantee that your assets are protected from creditors (the people that win in a lawsuit against you). But, what you can do is to make it difficult and expensive to seize your assets. You could move your money to the West Indies or the Caribbean. Creditors will be exhausted with the time and cost involved in navigating foreign laws, and in countries that don’t recognize foreign judgments, collecting on a debt may be impossible.
Or, instead of making it hard to get your assets, you could simply not own your assets. There are two key ways to do this.
First, if you have a business, you could create an LLC. (You could also create a partnership or a corporation, but I prefer the LLC for the flexibility and added layer of protection if offers small businesses.) If you are sued for something that occurred in the course of business and lost, the plaintiff creditor could seize only the assets of the LLC because they are not your assets.
Second, create a trust. Trusts are excellent tools for avoiding the legal process called “probate.” But less known to most, trusts are also great tools for protecting assets. If you put your assets in a trust, as long as the trust is irrevocable and you are not the trustee or the beneficiary, your personal creditors cannot seize the assets of the trust. Losing this control can be scary but setting up a trust in this fashion is a great way to protect your assets.
If you are fortunate enough to have assets to lose, do yourself a favor and protect them from overzealous litigants.
Robert (Bob) Good has practiced law in Jackson County for over twenty years, specializing in family law, estate planning and business law. Contact him at his Ashland office at (541) 482-3763.