Safeguarding Your Property: A Guide to Asset Protection

In today’s litigious society, anyone can find themselves the target of a lawsuit. In the U.S., millions of civil cases are filed annually, making lawsuits a near certainty, especially for professionals in highrisk fields like medicine, law, architecture, or business ownership. Research from the New England Journal of Medicine indicates that nearly every physician in high-risk specialties will face at least one malpractice lawsuit before they retire.

To combat this risk, there are several asset protection strategies you can employ to safeguard your financial resources and property—including your home and business—from potential litigation and creditors. Here’s how you can fortify your defenses to make yourself a less appealing target for lawsuits and to improve your position should you face legal action. Below is a brief asset protection guide.

Ensure Adequate Insurance Coverage: Insurance Coverage is Key

The foundational step in asset protection is securing comprehensive insurance for both personal and business assets. Regular consultations with an insurance professional are crucial to maintaining sufficient coverage for your home, vehicles, and other personal properties. For business owners, staying updated on commercial general liability, professional liability, and employment practices insurance is key. Always take the time to understand the details in your insurance policies.

Reconsider Marital Property Arrangements

In some regions, transferring assets to a spouse may shield those assets from creditors, but this method has its drawbacks and limitations, particularly if a divorce occurs. Additionally, this strategy might not be effective in community property states, where assets acquired during the marriage are considered jointly owned regardless of whose name is on the title. Consulting with an estate planning lawyer is essential to navigate the best path for your circumstances.

Establish Separate Business Entities

To minimize risk, avoid holding all your assets under your personal name or a single business entity. By distributing significant assets like real estate, equipment, and receivables across various entities—such as multiple LLCs or trusts—you can ensure that only the assets in the entity facing litigation are exposed. An estate planning attorney can guide you in setting up these entities correctly and advise on their management.

Consider a Domestic Asset Protection Trust (DAPT)

Many states now recognize DAPTs, which offer robust protection against creditors’ claims. Incorporating a spendthrift clause into a DAPT can protect inherited assets from your heirs’ creditors in certain states. However, the effectiveness of a DAPT can vary widely from one state to another, making it crucial to work with a knowledgeable attorney to choose the best jurisdiction and structure the trust appropriately.

Explore Offshore Trusts

Placing assets in a foreign asset protection trust (FAPT) positions them beyond the reach of U.S. courts, thus complicating legal actions against them. The prospect of litigating in a foreign legal system often deters potential lawsuits. While FAPTs can be costly to set up and maintain and come with stringent reporting requirements, they may be a viable option for some.

Not every asset protection strategy will be suitable or necessary for every individual, but implementing even one or two can significantly reduce your vulnerability to losses from lawsuits.

Need Asset Protection Assistance?

If you’re considering enhancing your asset protection plan, start by consulting with a qualified estate planning attorney who can tailor strategies specifically to your needs. At the Law Office of Jonathan D. Alexander in Orange County, we specialize in crafting bespoke asset protection solutions for our clients. Reach out today at (949) 334-7823 to schedule a consultation and take a proactive step towards safeguarding your assets.