How to Protect Your Asset from Lawsuits
So, how do you protect your assets from lawsuits? We will discuss this in detail. But first, let’s look at what is happens when the economy goes haywire.
When the economy goes down, lawsuits go up.
This shouldn’t be surprising. When things are going well, people have access to ample opportunities. They can afford to take risks and they know their hard work will pay off. But when the economy starts to crumble, these opportunities start to go away. People get desperate – they are less willing to tolerate simple mistakes and more likely to view them as new opportunities.
There’s an old saying in the attorney word: “litigation is recession proof.”
When things go wrong financially, people cannot sue the economy. So, they look for someone else to blame. Thus, we see a flurry of lawsuits. It happens time and again.
No matter what the situation is, there is a certain portion of the population who is willing to try and take other people’s wealth by force. In down economies, this group gets larger and more aggressive.
And it works!
Litigation is very effective and there’s a tremendous amount of myths and misinformation surrounding the topic, which makes it even more effective.
So, you need to know exactly what to do in order to protect your assets from lawsuits. First, let’s take a look at some asset protection myths.
Asset Protection Myths
Consider the following myths:
- I won’t be sued because I’m a good person. FALSE!
- I won’t be sued because I’m honest in my dealings. FALSE!
- I won’t be sued because I didn’t do anything wrong. FALSE!
People don’t sue you based on your moral character or because there was a legitimate problem. They do, but that’s only one of the reasons and not even the most important.
People sue because they can and because it works.
And it works, because the law is very rigid. It doesn’t take into consideration intent or virtue, it looks at arguments. Whoever has a better case can win.
What this oftentimes turns into is a judge trying to decide which of two narratives is more likely to be true. It’s a hard job, because litigation attorneys are very good at their jobs. They can spin a situation to make you look like an evil person with almost no effort at all. They can do this whether you protect your assets or not.
What’s even worse is that you’ll discover this immediately when someone hits you with a lawsuit. The reality is that going to court is a huge gamble that you’ll be able to convince the judge to side with you. So what do most people do? They pay off the attackers. It’s legal theft and it’s very effective.
You need to deal with facts – and they will blow your mind:
- Over 80% of lawyers live in the United States (1).
- 15 million civil lawsuits are filed every year.
- Lawsuits can take anywhere from 6 months to over 3 years.
- 92% of lawsuits are settled out of court.
- The average settlement costs $50,900, plus another $15k in legal fees.
- If you go to court and lose, the average judgement is $1.1 million.
Real estate investors have it worst of all, with an 80% chance of being sued at some point in their lifetime.
It’s Not If But When You’ll Be Sued
It isn’t a question of whether you will be sued. It’s a question of when it’s going to happen and what position you’ll be in to defend yourself.
It’s often too late to protect yourself once a lawsuit begins. So, you need to be prepared in advance.
We have former litigation attorneys on staff. We’ve seen desperate people say whatever it takes to win, it happens all the time. And while this was a big turnoff for me (which is why they became asset protection attorneys), there are lots of litigation attorneys who don’t care. They have their own staff to pay and families to feed. If suing you for ~$200,000 for a Breach of Contract or Fraud claim pays the bills, then that’s what they’re going to do. We just got off a phone call with a client who was facing this exact dilemma.
You may be wondering why I referenced those claims specifically? The reason is they both allow litigation attorneys to avoid fighting your insurance company. This leaves you totally unprotected and vulnerable.
See, the real goal here isn’t to bring you into a courtroom. That’s time consuming and expensive. It’s bad for business.
No, they want to threaten you and collect their payday as soon as possible. They know If they can just get you scared that you’ll pay them $60,000 to go away. And that’s how they win. The first $10,000 goes to the litigation firm and the remainder goes to their desperate client. While you’re left out in the cold, feeling abused but with only yourself to blame.
#1 Tip on How to Protect Your Assets: Be Proactive
You must be proactive with this kind of stuff! Putting bulletproof asset protection in place before you get sued is the only way to defeat these kinds of people. They aren’t concerned with ethics and they don’t care about your feelings, they see you as a free meal. And that’s what you are, unless you’ve taken measures to protect yourself.
But let’s talk about protection quick, because I’m not just talking about getting an insurance plan and calling it a day. I’m not really even talking about setting up an LLC. Those things are important, but can be bypassed in a variety of ways, some of which I’ve already mentioned.
A bulletproof asset protection plan is what you want. And it’s every bit as sophisticated as the tactics your opponents will be using against you. This type of protection means you don’t have to care about the facts, about the law, or even about whether your insurance company will cover you or not.
You might be hit with a frivolous lawsuit (the facts), they may penetrate the corporate veil of your LLC (the law), and your insurance company may roll over on you (the insurance company).
IT DOESN’T MATTER…
You’ll know the proactive steps you took to set up a plan to protect your assets even in the worst case scenario.
Strategies to Protect Your Assets
So what does this look like on a strategic level? There are five basic pillars to asset protection. Each of these undermines your opponents financial incentives. The goal isn’t to win a court case, it’s to demotivate your attackers so they leave you alone and look for easier targets. And if they don’t, it limits your downside so you’re never overexposed even to relentless attackers.
The 5 pillars are…
You may not realize this, but the Internet exposes all your information for the world to see. All I need is your name and a general idea of where you live and I can find out all about you – what you own, how much equity you have, etc… This makes it super easy for litigation attorneys to crunch some numbers and decide whether you’ll be a profitable business endeavor. If you are, they will sue, and you will most likely pay them off. Anonymity hides your information from the public eye, making you look like a beggar. And nobody sues beggars.
If you’re sued, it isn’t just your property that’s in danger. Your entire net worth is at stake. Creating a Limited Liability Company (LLC) is one of the most common ways of protecting your personal assets from a business lawsuit. It keeps your business and personal life separate – it’s the best kind of work/life balance.
You’re going to want to create decoys as well. You can do this by creating a shell company. I’m sure you’ve heard about these on the news, most likely related to shady government schemes or oil companies. The reality is much more practical. A shell company is what conducts your day-to-day operations, but it doesn’t hold anything of value. You should require tenants and others to sue your shell company within the contract language itself. That way, even if they sue you they’ll get nothing and you just need to spin up a new shell.
Just like lawsuits can spill over from your business into your personal life, they can also spill over from one asset to the others. And just like you did with your personal liability, you’ll want to separate each asset from the others. You could do this by creating multiple LLCs and trying to manage them individually, but that gets expensive and complex very fast. Instead, you should be looking at more robust entities, like a Series LLC or DST. These allow you to scale infinitely and for very cheap, while providing the same or better strategies to protect your assets.
Last but not least, you need insurance. It’s just important not to put your faith in it the way so many investors do. Remember: insurance companies are for-profit corporations. Think about all the natural disasters and how the insurance companies try to wiggle out of responsibility every time. They do this because they are trying not to lose money. They will do this to you as well if the opportunity arises. So yes, buy insurance, but don’t let that be your one and only line of defense to protect your assets. After, all insurance companies are notorious for finding exceptions so they don’t have to pay. Plus, anyone can sue you for more than your insurance covers.
When done correctly, you won’t have to worry about lawsuits anymore. You know how to protect your assets from lawsuits. You have employed the proper strategies. Therefore, you will have removed the financial incentives for suing you, which is the whole point of a lawsuit. If they can’t make money by suing you, then they simply won’t do it.
For those of you who have over $100,000 in equity in any one property, you should use a tactic called equity stripping. This involves spinning up your own mortgage company to make sure that any payouts on the property go to your mortgage provider (i.e. you) first.