Protecting Assets From Lawsuits and Creditors

By Anastasia Taber, CFP®

Unexpected lawsuits or mounting debts can shake your sense of financial stability in an instant. While life’s surprises can’t be completely predicted, putting proactive measures in place to protect your assets can help preserve your wealth and give you peace for the future.

This article provides general, educational information about asset protection concepts you can review with a qualified attorney. These concepts can provide a starting point for conversations with your attorney about reducing exposure to creditors and legal claims while keeping your overall financial plan aligned.

Read on to discover how to fortify your financial foundation and safeguard your assets against the unexpected.

Understanding the Risks

Before taking any preventative action to protect assets, it’s essential to understand the potential hazards. Here are some typical situations:

• Lawsuits: A lawsuit can result from an automobile accident, an angry neighbor, or even an error made by a professional. If a judgment is ruled against you, your assets could be seized to pay off the debt. 

• Debt collection: Delinquent personal loans, credit card payments, or medical costs can lead to aggressive debt collection activities. To make up for their losses, creditors typically try to seize your assets or garnish your salary.

• Business liabilities: If you own a business, you could be personally liable for its debts and obligations. A lawsuit against your business could put your personal assets at risk.

• Divorce settlements: High-net-worth individuals often face complex and substantial financial settlements in divorce proceedings, which can significantly impact their assets.

Common Approaches to Discuss With an Attorney

Thankfully, there are a number of strategies you can use for protecting assets. Here are some of the most common strategies to review with your attorney and tax professional:

1. Homestead exemptions: Homestead exemptions, which shield a portion of the equity in your principal residence from creditors, are provided by the majority of states. To learn about the restrictions, look into the particular exemptions in your state.

2. Insurance: Your first line of defense is liability insurance such as an umbrella policy. Depending on your line of work, you should also think about professional liability, auto, and homeowners insurance. These plans can help to shield your assets from being immediately taken and can also pay for court expenses. Work with a licensed insurance professional to evaluate appropriate coverage levels.

3. Trusts: Irrevocable trusts can be a potent tool for shielding your assets. You give up ownership and control of assets when you transfer them to an irrevocable trust, but doing so usually renders them inaccessible to creditors. Trusts have important legal and tax implications, so speak with an experienced estate-planning attorney and your tax professional; only an attorney can provide legal advice.

4. Retirement plans: Typically, creditors cannot access your retirement plans, such as IRAs or employer-sponsored 401(k) accounts. However, exceptions exist, such as when you owe back taxes or past-due alimony payments, which may allow creditors to reach your retirement funds. Confirm protections under federal and state law with your attorney.

5. Limited liability companies (LLCs): You can keep your personal assets separate from those of the business entity by forming an LLC for your company or investment properties. In most cases, your personal assets are safeguarded in the event that the firm is sued. Entity selection and formation should be handled by an attorney; improper setup or commingling can undermine protections.

6. Titling strategies: Joint property ownership (tenancy by the entirety) with a spouse or other reliable person can provide some defense against creditors. But this strategy has its limitations, and it might not work in every circumstance.

7. Prenuptial agreement: Prenuptial agreements are crucial for protecting your assets because they establish clear terms for asset division in the event of a divorce. By outlining financial arrangements and ownership rights beforehand, prenuptial agreements help safeguard your wealth and minimize potential disputes, ensuring your assets remain protected. Consult a family law attorney for guidance tailored to your situation.

Timing matters; many protections must be in place before a claim arises. An attorney can advise you on the appropriate steps.

The Bottom Line

Protecting assets is crucial for building a confident financial future. By understanding the threats and defensive strategies explained above, you can explore strategies with a competent attorney to reduce exposure.

Remember that navigating the legal and financial complexities of asset safety requires proactive planning with the assistance of trained professionals. You can safeguard your hard-earned money and give yourself and your loved ones financial confidence by implementing the appropriate combination of strategies.

Start Protecting Your Assets Now

Designing effective asset protection strategies can be complicated. Partner with a competent attorney, and as your wealth manager, we coordinate your financial plan with the legal structures your attorney recommends.

At TABER Asset Management, we develop tailored asset defense strategies that fit your specific circumstances. Our mission is to give clients the confidence and control to pursue the lives they envision through thoughtful wealth management and financial planning.

Get started today by scheduling a 15-minute intro phone call online or reaching out to us at 515-557-1860 or invest@taberasset.com. 

Disclosure: TABER Asset Management does not provide legal or tax advice. Please consult a qualified attorney and tax professional regarding your specific circumstances.

About Anastasia

Anastasia Taber is an Associate Advisor and leads the financial planning services division at TABER Asset Management, an independent, fiduciary wealth management firm, in Alexandria, Virginia, that strives to do one thing well: manage their clients’ money by creating wealth, building wealth, growing income, and preserving capital so they can experience financial freedom. Anastasia is a CERTIFIED FINANCIAL PLANNER® and has a Bachelor of Arts in English from Georgetown University. She has years of experience working for one of the largest REITS in the U.S., as well as in property management and accounting at a global law firm in Washington, D.C. Anastasia is passionate about exceeding her clients’ expectations and building caring, long-term relationships based on trust. She is known for being detail-oriented and committed to excellence in her work. Anastasia is a co-host on the Creating Wealth podcast. To learn more about Anastasia, connect with her on LinkedIn.