Are you ready for some sobering statistics from the legal front? You just might be surprised by how many legal disputes occur in a given year.
- With a population of about 310 million people, the United States has 1,128,729 lawyers, or about one for every 275 residents.
- More than 15 million civil cases are filed each year.
- The plaintiff wins 55% of all tort trials in the United States.
- Lawsuits result in the transfer of over $30 billion dollars per year.
We often hear stories about lawsuits involving millions of dollars – sometimes even hundreds of millions. We also hear about frivolous lawsuits, and there seems to be more than a fair share of those.
It’s important to understand that lawsuits can one day come knocking at your door. This is especially true if you have – or plan to have – a substantial number of assets. Lawsuits are mostly about gaining control of your assets. How can you protect your assets from lawsuits and other legal disputes?
1. Incorporate Your Business
If you have a business you are almost always better off incorporating it. That turns your business into a distinct legal entity – a legal “person” if you will – and provides a measure of protection by separating your personal assets from business assets. Though a party can bring a legal action against your corporation, your personal assets will be protected.
This isn’t always as foolproof as it sounds on the surface, but it does offer some level of protection. At worst, if your business is sued into oblivion, you would have an opportunity to start a new business under a new name.
2. Have Plenty Of Insurance
There are many different insurance policies to cover virtually anything you can imagine. But if you have a business, or a large amount of money personally, you should have insurance that will cover areas of your life or company that might be likely to encounter a lawsuit.
At a minimum, you should have general liability insurance if you have a business. This coverage is generally not very expensive, and you should have as much of it as you can afford.
On the personal front, make sure that you are adequately covered where necessary. For example, many people try to lower the cost of their auto insurance by cutting their coverage down to the lowest limits allowable in their state. But if you have substantial assets, you should increase the amount of coverage that you have to offer greater protection in the event of a large lawsuit.
3. Create Trusts
Trusts are one of very best ways to protect your assets. There are many different types of trusts, subject to various laws, so we’ll keep this discussion basic and brief.
Trusts can be either living or testamentary. A living trust, also referred to as inter vivos, is set up while you are still alive, whereas a testamentary trust is created upon your death and funded through your estate or life insurance proceeds.
In the case of a living trust, it can be either revocable or irrevocable. If the trust is revocable, you can amend it, or even cancel it if you need to. This kind of trust allows you to have control over the trust assets even as they are protected from creditors. Once you die, the assets are transferred as declared in the trust, and this usually happens without being subject to probate as non-trust assets often are.
Trusts are legal creations, and that means that you will need an attorney to create one that will meet your needs.
4. Protect Money In Retirement Accounts!
Most people think of retirement accounts as dedicated vehicles to provide for retirement. That is what they’re set up to be, but they can also be a form of what we might call “soft trusts.” The courts have generally exempted retirement accounts – IRAs, 401(k)s and other types of accounts – from claims by creditors. In addition, they are generally excluded from bankruptcy proceedings.
You may be very interested in maximizing your contributions this year (to ensure a more comfortable retirement), but while you are doing that remember that you’re also shielding your money from potential foes!
5. Don’t “Push The Envelope” Too Hard Or Too Often
The first line of defense against legal disputes comes from controlling your own behavior. Many people – especially business people and those who are very successful – make a business lifestyle out of pushing the envelope. A certain amount of that is necessary in order to be successful in just about any venture. But pushing it too many times – and pushing it too hard – can also invite lawsuits.
6. Consult A Lawyer On A Semi-Regular Basis
Speaking of pushing the envelope, you should have a lawyer who you can consult with to help you navigate your actions and business practices. If you’re going to launch a new venture or product, it would be best to consult with a competent attorney to consider the potential for legal action that may result. This will be your opportunity to assess the legal risk, and to decide either to make modifications or even to cancel the venture entirely.
This isn’t to say that you need to operate your business in a straitjacket. But you do need to protect yourself on the margins. As the saying goes, an ounce of prevention is worth a pound of cure.
Nowhere is that advice more valuable than when there is the potential for a legal dispute.
Do you give much attention to the possibility of facing a legal dispute? Have you ever been involved in one? Leave a comment!
Source: Politics USA America’s Growing and Lingering Obsession With Lawsuits.