Strategies to Protect Assets from a Lawsuit

If you are sued and lose, your personal assets could be at risk. However, there are a number of relatively easy and inexpensive steps that you can take to safeguard your assets in the event of a large judgment against you. Here are 6 tips to protect assets from a lawsuit.

1. Incorporate. If you are self employed, consider incorporating your business. Since a corporation is a separate legal entity, in most cases, personal assets will be protected if the business is sued.

2. Buy an Umbrella Policy. You usually can obtain a substantial amount of coverage with an umbrella liability insurance policy at reasonable cost ($1 million of coverage may cost just a few hundred dollars annually). Umbrella policies provide additional liability coverage over and above that provided by your homeowners' and auto insurance policies.

3. Maximize Contributions to Retirement Accounts. Put as much of your income as you can into retirement accounts. In particular take full advantage of employer-based retirement accounts, such as 401-Ks, pension plans and profit-sharing plans, since these funds will be protected in the event of a judgment against you in a lawsuit. Funds in IRAs also may be protected if you file for bankruptcy as a result of a lawsuit judgment, but there are limits to this protection.

4. Hold Assets Jointly and Consider Tenancy by the Entirety for your Home. In some instances, holding assets jointly may protect them in the event of a lawsuit. In particular, if your state allows it, consider holding your home in tenancy by the entirety. Tenancy by the entirety means that each individual owns the entire property, not just a share of it, and, therefore, the property can't be conveyed by one owner alone or seized from one owner alone as a result of a judgment against that owner.

5. Plan ahead. Taking steps to protect your assets after a lawsuit has been filed or after an event occurs that causes you to fear that you will be sued, such as transferring title to assets to your spouse or your children, may be seen as a transparent effort to avoid paying a judgment and, therefore, could be nullified. It is far better to take steps to protect your assets before there is even a possibility of an action against you.

6. Seek Professional Help. Since state laws related to asset protection vary widely and each individual's financial situation is different, consult with a lawyer to ensure that you find the best asset protection strategy for you.

Sources:

Amber Keefer, www.ehow.com, How to Protect Your Assets When Getting Sued/eHow.com

Janet M. Washburn, www.retirement-retirement.com, Large IRA's not fully protected from bankruptcy or lawsuit seizure?

Jonathan Clements, online.wsj.com, Protecting Your Assets in Case Your Find Yourself in Court - WSJ.com