If you own a business or work in an industry where you have a high chance of being sued – such as in the medical, financial, and real estate industries – you should protect your assets from any legal action taken against you.
If you don’t, you could quickly lose your hard-earned personal and business assets to a creditor, client, employee, tenant, etc., who files a lawsuit against you on grounds such as failure to pay a debt, negligence, professional malpractice, and breach of contract.
In this post, I’ll share with you some of the popular asset protection methods you can use in California.
First, however, let me define what asset protection is.
What is Asset Protection?
Asset protection refers to legal strategies individuals and businesses can use to protect their wealth from civil money judgments.
Assets that can be protected using these legal strategies include:
- Real estate such as primary and vacation homes, investment properties, and land.
- Liquid assets like money in a checking and savings account.
- Personal property, for example, jewelry, art, cars, and planes.
Asset protection attorneys recommend that businesses and wealthy individuals have asset protection in place before a potential lawsuit because initiating any wealth protection strategy once you have been sued often is a waste of time.
Common Methods Used to Protect Assets From Judgements in California
Protecting your wealth from court judgments in California isn’t difficult to do. Here are a few ways to shield your property from lawsuits.
Register Your Business as a Limited Liability Company
If you’re a business owner, one of the simplest ways to protect your home, car, bank account, or other valuable assets from business creditors is through a Limited Liability Company (LLC).
An LLC ensures your personal assets cannot be touched to settle a claim made against your business.
So, if someone successfully sues your company and the court awards damages only your business assets can be seized to pay the individual. In a sole proprietorship both your personal and business assets can be used to pay damages in a lawsuit.
To ensure the LLC protects your wealth, clearly define your business and personal assets. For example, you should have separate business and personal bank accounts and your name should be used on the titles of personal properties owned.
Transfer Valuable Assets to Your Spouse
If you’re married and run a business or are in a profession that incurs liabilities it could be a good move to let the spouse with the less risky occupation hold your assets.
For example, if you’re a plastic surgeon, the chances of you being sued are extremely high. So as an asset protection strategy you can have valuable assets under your spouse’s name, which ensures creditors cannot get a hold of them.
While this is a good asset protection strategy it could cause you to lose your assets if you divorce.
Asset Protection Trusts
There are two types of trusts you can use to protect your wealth from lawsuits or creditors, domestic asset protection trusts and offshore trusts. I’ll explain each of them below.
Domestic Asset Protection Trusts
This type of trust is created in the U.S., and for you to create one, you have to transfer your assets to a trustee who legally becomes the new owner of the assets.
So, in case you do face a lawsuit, you can claim that you can’t pay any damages because you don’t have any assets. Assets you can put in a domestic asset protection trust include business property, real estate, stocks, and cash.
Note, however, that a domestic asset protection trust doesn’t offer you 100% asset protection. Because the trust is set up within the U.S. courts jurisdiction, a court can order a trustee to pay child support, taxes, taxes, etc.
Offshore Asset Protection Trusts
This is one of the best legal tools wealthy California residents can use to protect their assets from U.S. court judgments.
It involves creating a trust in locations outside of the US such as Belize, Cook Islands, Nevis, Luxembourg, Jersey, and the Cayman Islands, where U.S. court judgments are highly unlikely to be obeyed by a trustee.
A few advantages of using an offshore trust to protect your assets are:
- You can continue to benefit from the assets held in the trust.
- An individual can still try to get some or all of the trust assets in the offshore trust jurisdiction by filing a lawsuit there, but this is highly unlikely because the cost of a legal case and the time it will take for the case to be heard and determined are likely to deter anyone from even trying.
- Offshore trust jurisdictions have short statutes of limitations to file lawsuits. For example, Cook Islands has statutes of limitations as short as a year. So, if someone has made a claim against you in the U.S., by the time it is judged the statute of limitation in the offshore trust jurisdiction could be up, and once the time to file a lawsuit runs out, accessing the assets in an offshore trust is nearly impossible.
Other ways you can use to protect your assets include:
- Retirement plans. A court judgment cannot be settled using your 401(k) plan.
- Homestead exemptions. This protects your primary home from seizure up to a certain value. In California, the house exemption is up to $75,000, and homes worth more than that can be seized.
- Family Limited Partnership (FLP). This involves buying and owning assets with your family members. Because you co-own the assets you’re not at risk of losing them due to court judgments.
Gallagher Krich, APC: Experienced San Diego Asset Protection Attorneys
Whichever asset protection method you decide to use, you should ensure it is structured properly. To do that you’ll need an asset protection attorney.
Gallagher Krich, APC, has helped hundreds of businesses and people in California for over a decade protect their wealth from any legal action and we can help you do that too.
Call us today at (858) 926-5797 or schedule a free consultation online with one of our experienced asset protection attorneys and we can discuss bulletproof legal strategies that can ensure you lose no assets should you be sued.