By: Edward D. Brown, Esq., CPA, LL.M
When you consider that the chances of being sued and the possible resulting financial repercussions (not to mention the stress and emotional toll) can be significant, proactive asset protection planning should be near the top of many people’s “to-do” lists.
Rocket Lawyer Incorporated estimates that more than one hundred million lawsuits are filed every year. Most people know at least someone who has been sued. Many are aware of the numerous risks existing that could be devastating to the targeted “defendant,” whether due to divorce, an employee action, or any adverse business development that drives one into bankruptcy.
There is no shortage of lawyers who will bring a case on a contingency fee basis, requiring no upfront money. Both the plaintiff’s attorney and the plaintiff (as the “victim” client) can win from pressuring you as the targeted defendant to settle and avoid the time-consuming and costly experience of going to trial. In the end, the contingency-fee attorney and client collect their respective cut of the judgment or settlement amount you pay. The contingency fee arrangement has some laudable applications but, nevertheless, can fuel litigation, with the client having little to lose regardless of how little merit exists behind the allegations or how frivolous they may be.
You may be in the high-risk categories if you own or manage a business (e.g., vicarious liability through your employees), have a spouse, own “dangerous” assets such as real estate or an aircraft, or even if you drive a car. You do not have to be “at fault” to be liable (for example, strict liability matters). The simple fact that a person has an attractive financial statement can make the person a more-likely target for the creditor. This is key because proper asset protection planning moves assets from a personal financial statement to a separate owner (usually involving a trust or trusts), which allows an individual’s personal financial profile to become less of an attraction or encouragement to would-be-predator/plaintiffs.
Other “drains” on one’s net worth can also occur such as a loss of a job, downturns in a business, or medical costs due to arising health issues (including the compounding factor of an attendant loss in earnings capacity). At the time any such “drains” occur, one would be thankful he or she had previously set up an effective asset protection plan. Lawsuits are just as likely (if not more likely) to happen around the same time that these “drains” tend to surface.
The threshold to bring a lawsuit is very low, and as noted above, many attorneys will bring legal actions with no upfront cost to the claimants. Instead, attorneys are willing to collect a percentage (on the above-mentioned contingency fee arrangement) of whatever judgment the attorney can obtain from a jury of your “peers”; therefore, as a defendant, you could be intimidated to offer the plaintiff a “nuisance fee” to go away. Most juries of your peers may be in a very different economic or social position than you and have difficulty identifying with you and your plight. Being aware that your assets were unprotected, you could almost be effectively “blackmailed” into paying out a significant ransom (as opposed to placing your fate in the jury’s or judge’s hands).
Even if you win the lawsuit, you could still incur significant legal fees, courts costs, etc., during your defense, not to mention resulting damages to your reputation.
Having proper asset protection planning in place in advance of an existing threat of litigation can allow you to be able to negotiate from a position of strength instead of high vulnerability. As such, you stand a much greater chance of settling any actions much sooner in the process before as much financial and reputational carnage occur, and with a much more favorable dollar-settlement amount outcome.
*The information in this article is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from Greenspoon Marder LLP or the individual author(s), nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.
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