First of all, it is important to understand that you can protect your assets from a lawsuit and you can do this legally. However, the best practice is to make this move early and before you are actually in a lawsuit. There are a few ways in which you can still protect the assets after you are already in a lawsuit. But, it’s still not wise to wait till the very last moment when your opponent asks the court to freeze your assets without you having put them in an asset protection entity or trust.
Most people are under the impression that only people in high-risk professions are ones that need insurance and other asset protection strategies. If you are among them, then you should know the answer to how to legally hide your money from lawsuit This is not true; you don’t know when you or your family will be in a situation that might warrant a lawsuit. For example, your teenage kid might end up getting in an accident in your new car, and what if the car is not protected and you get sued for the accident? You will lose the car and much more once you go to court.
It is also a mark of a good businessman or investor to never leave your assets out there, unprotected, and ready to be attacked by lawyers in case of a possible lawsuit.
Here are a few well known ways in which you can protect your assets from creditors and lawsuits.
1. Make good use of Business Entities
The best way to know the answer to how to legally hide your money from lawsuit you must protect your assets is to make sure you make a clear distinction between your business assets and your personal assets. Take out the time to legally establish a business entity like a corporation, a limited liability company or a limited partnership. If you fail to do this, you are at risk of losing everything you own in case of a lawsuit.
You can go for any of the following options:
- Sole proprietorship
- General partnerships
- Limited partnerships
- Limited Liability Corporation
2. Look at Your Own Insurance
There are some careers that will attract more lawsuits than others. For example, if you are a lawyer, a doctor, a psychiatrist or a financial advisor, you will attract more trouble when it comes to lawsuits because your profession has more room for error. To avoid this, you need to keep your errors and omissions coverage always paid up and also look for a well rounded coverage to boost. Here are some kinds of coverages that can prove life saving for you:
- Commercial liability insurance– This will help protect your business if an employee hurts someone on the premise or if someone ends up getting hurt on the property.
- Homeowner’s insurance– This will keep your house safe in case someone gets hurt or is hurt on the property. Be careful while you choose the deductible to make sure its something you can pay easily. You also have to make sure that the coverage is enough in case someone gets hurt on the property and decides to sue for it.
- Worker’s compensation insurance- This makes sure you and your employees are both protected, and also gives you enough coverage to take care of an employee that might get hurt during work, without you having to pay the bills out of your pocket
- Auto Insurance- In this case, always go for additional coverage apart from the minimum legal liability coverage. You should buy enough coverage so in case the vehicle is involved in an accident and there is a lawsuit, it can be protected. The wise move here is to make sure that your total liability insurance is atleast equal to your total assets if not more
- Umbrella Coverage: In the event that all the above coverage options have been exhausted, this serves as a backup coverage. Let’s say you have $0.5 million in auto insurance liability but are sued for $1.5 million, Umbrella coverage will pay for the rest of the $1 million. This is usually very affordable so its a good idea to get it for a rainy day.
- Long-term Care Insurance: This protects you against the hefty costs of nursing home or in-home care for diseases such as Cancer, Alzheimer’s disease, dementia, strokes and etc. Because Medicare doesn’t cover these illnesses properly, its important to be vigilant and get insurance for these beforehand as a precaution. The medical bills can take a toll on your finances so its best to be prepared. It costs around $200 per day for a standard nursing home, and you don’t want to keep paying that from your pocket.
3. Prepare for Your Retirement
You want your retirement to be a period of calm rather than chaos. You can get up to $1 million in assets in an IRA and unlimited asset protection in case you have an ERISA- qualified retirement plan through the federal government. Some states give even more protection to IRA accounts and others give less.
It is always wise to do some research and see how much coverage is available to the funds in these accounts. You can also speak to a family attorney who knows the law in your state to get this knowledge. If you happen to live in a state that has a good exemption, consider moving all the money that you won’t need till the age of 59 ½ into one of these retirement accounts. These accounts are great for saving money but there are limitations you need to be aware of or you can face penalties.
4. Look into Homestead Exemptions
This varies with the state you live in. Some states give a lot of emphasis and coverage to home equity. This means that in case of a lawsuit, the court cannot award a home’s equity to the creditors at any cost. Florida and Texas are a great example of the states that give unlimited coverage to home equity while others are a little conservative in this regard.
You will need to go the research route to make sure how much coverage you can get and if your state happens to give a good homestead exemption, make sure you pay a good principal in mortgage payments. The mortgage payment option is better than giving principal to vagaries in the housing market because that means you will lose access to the equity and the cash if the property values fall.
5. Examine Your Titling
You need to see how your home has been titled. The best route in states that don’t give a good homestead exemption is to have both you and your spouse on the title as tenants. That makes the property indivisible. Let’s say you get sued in a lawsuit and your spouse doesn’t then the creditors cannot force your spouse to sell their house. This is one worth looking into if you want to protect your assets. In these types of cases, you must want to know the other ways to how to legally hide your money from lawsuit.
However, only some states give the freedom of this option and this is applicable only to your personal property. No commercial property can be protected this way. How your property is titled will determine what will happen to the property in case there is a lawsuit. You need to talk to an expert lawyer and examine the situation to come to the best solution.
6. Life Insurance & Annuities
This one also depends on the state. Some states give a generous protection to annuity balances and cash value life insurance policies. A great example is Florida with unlimited protection of these funds, whereas Oregon puts a cap at $500 monthly in annuity income. Consult a lawyer that knows the state law to get more accurate information.
7. Simply get rid of your assets
Yes, it sounds drastic but no one can seize assets that you no longer have or own. Consider transferring full ownership to a trusted family member or put them in a trust from where family can keep withdrawing funds on a regular basis. This goes for people that know they are in high-risk professions, you can always transfer your property to your heirs well in advance.
Don’t wait till the last moment
We will keep repeating this advice again and again, you should be taking these steps well in advance. You should not wait till the very last moment and when you are actually sued to start protecting your hard-earned assets. Start thinking about what can suit your insurance needs the most and really help protect you.
In the end, please remember that this is just a basic guide and there is so much more to asset protection than this. You need to talk to a lawyer in your state and explain your situation. Each case is unique and needs a unique strategy to protect assets. Just take a timely decision and start moving on a good asset protection strategy.
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