There's nothing you can do if you're already in the middle of a civil lawsuit and have creditors after you, but if you're not and you're in a risky sort of business, it may be worthwhile to try to protect your assets in the event that a civil lawsuit comes up.
Some professions, like doctors, already have insurance coverage to protect their assets; however, it's becoming increasingly expensive to carry an insurance plan in some fields.
So how can these professionals protect themselves from liability?
It's important to plan this ahead of time. You can't protect your assets during a lawsuit as it's considered "fraudulent conveyance to defraud creditors." The best course of action is to start planning early. It is also important to consult with a qualified attorney and tax experts.
Here are some common ways to protect your assets:
A limited liability company (LLC) or a family limited partnership (FLP) can be used to protect your assets. You are creating a separate legal entity that holds all the liability. Additionally, you can structure it so that you make your family members limited partners.
2. Irrevocable Trust
Irrevocable trusts can protect your assets from judgments. The downside, however, is that once you place your assets in an irrevocable trust they must stay there. You cannot remove them. You have no more control over them. Basically, if you're want to protect them for your heirs, this is the perfect option.
3. Retirement Accounts
Retirement plans such as 401ks can protect your assets from everyone except your spouse and the U.S. government. Retirement accounts are protected by law under the Employee Retirement Income Security Act of 1974.
4. Transferring Ownership
You can also give your spouse ownership while maintaining control over your assets. This could work, but it doesn't prevent your spouse from being sued. Additionally, you may worry about losing control of the assets in the event of a divorce.
5. Insurance Policies
Even if it's pricey, insurance policies are still the most popular way to protect your assets. Attaining an umbrella policy is an easy and effective way to protect yourself and it has the added bonus of making the insurance company defend you.
Consult with experts to determine what the best course of action is to protect your assets.