When listing their financial fears, most people think of factors like a market meltdown, loss of employment, identity theft or failed investments. A major possibility that a lot of people don’t think about, but they should, is getting sued. This risk looms over certain people more than on others. If you are wealthy, or your job involves undertaking someone’s physical care, like a doctor or therapist, or if you own a business, then you are more likely to get sued in your lifetime. In such a situation, if you are unprepared when this happens, it might be too little too late. Therefore, it is important for you to inform yourself about the possibility of being slapped with a lawsuit and prepare yourself accordingly.
Protecting business assets
Successful business owners are a tempting and viable target for lawsuits from a variety of sources such as customers, competition, employees and government agencies. Because of this, a business has to learn to operate in a manner which minimizes its risk for legal liability, and structure itself as a business entity which does the same. How this is done will depend on the type of business and the sort of risks that particular business would be most vulnerable to. In certain cases, the use of multiple legal entities is recommended to isolate different kinds of liabilities from each other and to form a protective layer around particular assets. Different options will be open to different businesses depending on the laws where the business operates as well as any foreign jurisdictions the business may have access to. Given below are certain tips and techniques that business owners may use to protect their businesses from lawsuits:
• Keep the business free from questionable activity
Apart from conducting the business legally and ethically, a business must avoid making any public announcements or any activity that might seem dubious. This means avoiding making defamatory or slanderous statements, avoiding doing business with unethical or unreliable individuals as well as other businesses with questionable business practices. Many businesses often have to undergo losses because of no wrongdoings of their own but of other businesses they were involved with. It is also important for businesses to avoid any “conflict of interest.” For example, a board member of a company wanting to buy office supplies from the same business he or she owns.
• Hire a competent attorney or legal team
Every business owner won’t know how to handle themselves in legal matters. The more qualified and experienced a business’s legal team, the better. Business owners should check the reputation and experience levels of the attorney or member of the legal team they are hiring, and make sure they have experience in areas of law that commonly affect businesses.
• Use trusts to separate yourself from the business
Business owners who operate their companies as sole proprietorships run the risk of having their personal assets, such as their vehicle or house, attacked if the company is sued. To limit the possibility of having their personal assets being attacked, business owners can have a trust own the business. A trust is a legal entity that files its own tax returns and can legally own property. In case such a business is sued, the only assets that can come under attack are those within the trust itself.
• Get the business insured
All businesses should get liability insurance. Liability insurance transfers the cost of the liability to an insurance company in exchange for a premium. For example, if a customer was to slip and fall in the premises and sue the company, the insurance company would cover any legal reparations that had to be paid. A business can also only agree to get into contracts in which they are guaranteed a degree of protection from legal liability.
• Protect the files and receipts of the business
Businesses should keep all their records as secure as possible. As most businesses operate on computers these days, it is strongly recommended to have a technical team to manage and secure the companies digital files.
How to protect personal assets from lawsuits?
A lot of the methods recommended for businesses can also be applied to personal assets. Individuals can also get different forms of liability insurance which could protect them from losses in case they are sued. For example, having auto liability insurance would mean that if an individual has gotten into a vehicular accident, where he or she is at fault, the cost of the damage to the other persons vehicle and any injuries sustained by individuals in that vehicle would be covered by an insurance company in exchange for a premium. Individuals can also minimize their risk for legal liability by always working through proper contracts and procedures, and not working or spending time with unscrupulous or criminal individuals.
Individuals in specific practices which are open to different kinds of liability vulnerabilities, such as physicians or architects, generally retain some sort of personal liability for malpractice regardless of which specific entities they use. Entities can also fail to serve their purpose if the entities themselves are disregarded by the courts for improper practices when setting the entity up or for failing to follow formalities. This can be avoided by getting your legal work done by the best attorney possible.
Another great tool available to individuals to protect their personal assets is their marriage. Placing certain assets under a spouses name can protect assets as the spouse won’t be liable to the other spouses’ creditors. It is recommended that the spouse with the less risky lifestyle and least exposure to legal liability have their name used to protect assets. However, use of this strategy runs the risk of losing your assets should your marriage end in divorce.
In certain states, individuals can also protect their personal residence with “tenancy by the entirety.” Tenancy by the entirety means that if one spouse is sued, the property cannot be attacked in a lawsuit.
There are various other ways that can be used for asset protection. Talk to an experienced asset protection attorney in order to understand the methods that you can use to protect your assets from lawsuits.