It seems the news cycle has a continuous supply of stories about disgruntled employees or injured third parties bringing eight or nine-figure lawsuits against their employers, neighbors, and business partners. We might have thought the days of frivolous litigation were over, but they are alive and well in this increasingly contentious world we live in. Opportunists abound.
And the more you succeed, the more people want to take a piece of that success away from you. Whether it’s human nature, greed, or something more sinister, it’s a reality. Ignoring these and other threats to your assets may leave you exposed to liability. Listed below are some of the risks you should consider when creating a plan to protect your hard-earned assets.
If you own a business, work in a fiduciary role, or hold an executive position, you could face the following potential liabilities:
- Sexual harassment claims – More and more prevalent, claims that you have engaged in some type of prohibited workplace conduct, whether substantiated or not, are a real possibility. And just because you believe the allegations are meritless doesn’t mean the accuser won’t pursue legal action.
- Employment discrimination claims – Same situation here, the claim may have justification or it may be completely false, but as an executive or business owner, you can’t ignore the possibility of an employee raising this type of complaint.
- Workers’ compensation claims – Workplace accidents happen all the time. If you’ve opted out of workers’ compensation insurance in favor of self-insuring these incidents, a serious injury could mean a hefty payout – and employee negligence and assumption of risk are not valid defenses.
- Work-related vehicle accidents – Whether your business uses drivers to deliver product or your assistant drops off mail at the post office, when they’re in an accident on company time and you’re not adequately insured, corporate liability from third parties for such incidents is possible.
- “Slip and fall” accidents – Visitors to your business enjoy broad protection from hazardous conditions that you either create or should be aware of, like a recently mopped floor or that crack in the sidewalk that hasn’t been repaired yet. If visitors are injured and your insurance isn’t sufficient to cover the damages, attorneys may look to you for more.
- Intellectual property lawsuits – Whether it’s trademark or patent infringement, theft of proprietary information, or stealing competitive designs, this area of law is booming. And for good reason. Technology has become the key asset of many companies, so disputes are common and the potential damages can run high. Insuring against claims is difficult because of cost and uncertainty, so protecting corporate assets is critical.
- Defective products – If you produce faulty products and someone gets hurt, rest assured that a law firm will test the limits of your insurance policy, provided you have coverage. If no coverage is available, damage claims might be enough to sink the ship.
- Professional malpractice claims – Doctors and lawyers aren’t the only professionals that might find themselves defending a claim of malpractice. Financial advisors and other fiduciaries are also at risk for the claims of upset clients. Private and solo practitioners are especially exposed, as personal assets may be available for plaintiffs to grab.
- Breach of contract claims – Every business transaction is essentially a contract. If you fail to hold up your end of the bargain, and your customer or third party is economically damaged, they may hold you liable for damages, whether your failure was intentional or not.
Even if you don’t own a business or have a job that puts you at risk of lawsuits, your personal assets can still be at risk when faced with the following threats:
- Divorce – It probably goes without saying that the end of a marriage can be costly, both emotionally and financially. Since Texas is a community property state, at least half of your assets are vulnerable to attack. More difficult circumstances arise when your spouse owns a company with you or egregious behavior on your part led to the divorce. The potential for significant personal property loss is high in these situations.
- Medical bills – Unforeseen injuries or illnesses can create liability for medical care, even if you have insurance coverage. High deductibles and coinsurance contribute to the amount you will remain liable for if your policy only covers so much. And if you are unable to work for a period of time, disability insurance coverage might not be enough to cover your lost income.
- Auto accidents – Coverage under your insurance policy may not be sufficient to cover damages when an uninsured or under-insured driver is involved, whether it’s a third party or your teenager. If a catastrophic injury results, potential liability could be in the millions.
- Social host liability – Have a holiday party, serve alcohol, your guest leaves and causes an accident that results in injury. You go out of town, your teenager invites friends over to drink, one drives home and wraps their car around a tree. In either scenario, you could be held liable for damages resulting from the accidents.
- Foreclosure – For whatever reason, if you fall behind on your mortgage payments, the lienholder has a right to seize the property and sell it to satisfy their loan. While federal law limits liability from debt secured by your personal residence, there are no such restrictions on commercial loans – and a commercial foreclosure could leave other assets at risk of attack.
- Bankruptcy – There are number of reasons why you might be forced to file bankruptcy. In addition to the ones previously mentioned, you could lose your job and default on debts, have a creditor enforce a personal guarantee on a loan you cannot pay, or simply spend more than you make over time and be unable to dig out of the hole. Several state and federal exemptions are available to prevent creditors from taking assets in a bankruptcy, but those exemptions will likely not cover all of your property.
The good news is that for all of these threats there are simple, cost-effective solutions, and it’s not too late to protect yourself. Proactive asset protection planning can keep many, if not all, of your hard-earned assets from being exposed to attack. Through the strategic use of trusts and other tools, your property can be safe from creditors, safe from lawsuits, and safe from unforeseen liabilities.
TrustBridge Legal can design an asset protection plan that meshes with your estate plan, and which is tailored to the type of assets you have at risk and the type of claims that might be brought against you or your business. After identifying risks, vulnerabilities, and potential threats, your customized plan will not only insulate your assets from attack, it will complement your estate plan by ensuring the privacy of your financial affairs and simplifying the settlement of your estate when the time comes.