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As recently pointed out in STLToday.com, most of us will never get sued. Still, it's worth looking at ways to protect assets in case you do.
Good insurance is the first step. For instance, a $1 million all-perils, or “umbrella”, liability policy on top of auto and homeowners coverage can provide peace of mind on the cheap. Beyond that, understanding asset protection requires thinking like lawyers.
Your marriage license affords some round-about protection. Most spouses have their money in joint accounts, and their homes are in both names. In Missouri, someone with a judgment against just one spouse generally can't get their hands on such jointly owned property. Spousal protection is much weaker in Illinois, and, unfortunately, it doesn't work for accounts held jointly between non-spouses.
Retirement accounts, such as pensions, 401(k)s and IRAs may be exempt from civil judgments, but such plans can goof and create legal exceptions that let creditors sneak in. Retirement plans are fair game in divorce, for example.
Risks increase if you own a business. As a sole proprietor, a suit against the business puts your personal wealth at risk. That's why lawyers recommend that you incorporate. A "limited liability" or “Subchapter S” corporation provides reasonable protection. If your corporation defaults in a debt, the creditor can come after the business' assets, but not your house. Ditto with personal injury claims. An LLC or Sub S generally won't subject you to the corporate tax rate. The profits flow through to you, and you pay at your personal tax rate.
There are exceptions, of course. If you deliberately injure someone, expect to be sued personally. Employment actions, such as a sexual harassment suit, can also put you personally at risk.
For people at high risk of law suit, irrevocable trusts may serve as protection. You create the trust, put your assets in it, and name a trustee to take charge of it. You don't own the asset anymore. You can receive benefits of the trust while you live, and pass it on to your heirs.
The downside is that you lose full control of the assets. And it can't be revoked. It has to be set up properly to avoid a challenge, and you can't wait until you're being sued
The Korte Law Firm, LLC, helps people, families and businesses protect their assets by these and other methods. For more information, contact us through this website, or call 800-338-6686 or 314-821-4727
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