How Can I Protect My Assets From A Civil Lawsuit?

Updated: Feb. 12, 2025

As American businesses continue to face the threats of identity theft and time-consuming lawsuits, protecting sensitive information and personal and business assets has become more important than ever.

Asset protection helps you build a well-protected future for yourself, your business, and your loved ones. If you’re interested in this crucial strategy, read on to learn what it means and how to protect your assets before you get sued.

What is Asset Protection?

Asset protection encompasses various methods, schemes, and regulations that shield personal and business assets from creditors. Individuals and businesses can use it if they have been the subject of time-consuming, devastating legal claims.

Why is Asset Protection Important?

You may face a civil lawsuit if you do business and certain issues emerge during the process. Even the simplest claims can cost about $10,000 initially, with factors such as the duration of services and legal fees increasing this amount. You may lose everything you’ve worked hard to create when sued.

Many plaintiffs negotiate legal settlements through lawsuits. Lawyers have found that, for a small filing fee, one of these scenarios might happen:

1. You settle the claim without going to trial.
2. They take the case to court, spending two to five years to defend it.

In either case, you’ll spend your hard-earned money on litigation. If your legal counsel presents a convincing case, you’ll win against the plaintiff. This comes with a significant cost: a defense bill that can cost you thousands of dollars. It seems that even if you win, you lose.

Which Lawsuits Can Be Filed Against You?

A customer, client, partner, or employee can file the following lawsuits against you and/or your company.

• Employment-related lawsuits focused on:
  • Discrimination based on age, race, gender, pregnancy, disability, mental illness, addiction, or other protected characteristics
  • Sexual harassment
  • Peer harassment
  • Wrongful termination
  • Workplace injuries
• Professional malpractice in fields such as:
  • Medical services
  • Legal services
  • Engineering
  • Architecture
  • Accounting, banking, or finance
• Business liability lawsuits revolving around:
  • Environmental cleanup
  • Dissatisfied customers
  • Personal injury
  • Shareholder liability
  • Other relevant areas
• Personal lawsuits, including those involving:
  • Divorce
  • Business partners
  • Creditor claims
  • Accidental injury caused by a family member
  • Personal injury

How Does Asset Protection Work?

Four factors play crucial roles in shielding personal and business assets from lawsuits.

• The debtor’s identity: Debtors can be people or entities. For human debtors, notable considerations include transmutation agreements between individuals and their spouses.

• The creditor’s identity: The level of asset protection you want to achieve depends on your creditor’s identity. More established lenders are more likely to confiscate your assets.

• The nature of the claim: Your specific lawsuit is also key to asset protection. If you’re involved in a more complex case, you’ll need more robust protection.

• The nature of the assets: Sometimes, creditors are discouraged from seizing certain assets. Look at your current possessions and determine whether they can be taken away if a lawsuit is filed against you.

10 Ways to Protect Your Assets From a Lawsuit

To decrease your risk of losing valuable assets, consider tailoring the following strategies to your specific needs and goals.

Identify Potential Risks

Individuals and businesses encounter threats unique to their specific circumstances. Thus, it’s best to identify these challenges first.

When planning for asset protection, consider factors such as your profession, particular liabilities, and the incidents you may encounter. This step will help you devise a rational asset protection strategy.

Additionally, check and understand your state’s asset protection laws. The degree of protection you can get varies by state, making research useful for better decision-making.

Form a Legal Business Structure

Starting a business may seem easy, especially if you’re a freelancer or gig worker. However, incorporating your venture is the best way to ensure its recognition as a legitimate business and protect yourself from lawsuits.

In a sole proprietorship, personal and business assets are the same. If you lose, one legal claim can force creditors to seize your savings, home, retirement, and other personal property.

Legal business structures such as limited liability companies (LLCs) and corporations offer robust asset and liability protection. Asset protection won’t work for corporations if they’re sued for fraud. Conversely, LLCs shield personal and business assets from creditors through charging order protection.

Obtain Personal Insurance

Legal claims usually target individuals working in industries such as healthcare. With this fact considered, getting full insurance coverage is imperative.

If you are a financial advisor, gynecologist, or real estate agent, take some time to check your errors and omissions coverage. Additional coverage can also replenish your expenses during litigation, but there are cases where it affects finances.

Choose insurance plans with higher deductibles and coverage amounts to avoid the latter. Both can ease your worries about handling unforeseen legal claims.

Establish Trusts

Trusts are legal structures designed to manage a person’s assets in certain circumstances, most commonly death. You have several types of trusts to choose from, including:

• Asset protection trusts (APT) – This irrevocable living trust allows you to transfer some of your assets into an independently managed trust. Creditors can’t seize these assets, and shares can be remitted to you periodically.
• Offshore trusts – These trusts are run in another country, but you can keep using the assets transferred to them. The only caveat is that an offshore trust is protected under U.S. court orders.

Estate planning attorneys can help you compare trusts and choose the best one for your assets.

Write a Prenuptial Agreement

This asset protection strategy generally applies to married couples. Prenuptial agreements outline specific conditions that spouses must follow in case of divorce, encompassing subjects such as:

• How assets will be distributed between the spouses
• Who owns premarital assets (properties acquired before marriage)
• Whether spouses will receive alimonies

Drafting a prenuptial agreement between you and your current or future spouse is a reasonable way to protect your assets. However, if you have children or plan to do so, child support and other aspects, such as guardianship, are excluded from prenuptial agreements.

Open a Retirement Account

Asset protection is another notable benefit attached to retirement accounts.

If you’re covered by an employer-sponsored plan, your assets are well-protected from bankruptcy. All employee retirement plans covered by the Employee Retirement Income Security Act (ERISA) have this provision, including:

• SEP IRAs
• SIMPLE IRAs
• Defined-benefit and defined-contribution plans
• 403(b) and 457 plans
• Federal or church plans under section 414 of the Internal Revenue Service (IRS) Code

Note: The minimum amount SEP IRAs can have from regular IRA contributions is currently capped at $1,512,350. It’s adjusted for inflation every three years.

Get a Homestead Exemption

Most U.S. states grant homestead exemption to qualified homeowners. When this exemption is enforced, creditors cannot seize a home after a spouse dies or during bankruptcy.

Depending on your state, your home is protected from creditors to a certain degree. A homestead exemption can provide unrestricted, limited, or no protection. Thus, it’s important to check state laws before applying for this legal exemption.

Consider Titling

You can also shield personal and co-owned assets through titling, with options such as tenancy by the entirety. It’s a spousal agreement covering a couple’s primary residence, blocking seizure as stated in a legal verdict. Remember that some states may forbid you to exercise tenancy by the entirety, or the rule may not apply to investments.

Alternatively, you can investigate other titling options. Examples include joint tenancy, which grants rights of survivorship, and tenants in common, a type of titling that shields properties when their owner(s) die(s). As with other asset protection strategies, you should seek a lawyer’s assistance when exploring titling options.

Transfer Your Assets to Your Loved Ones

Full control over your assets increases and maintains your financial security. If you’ve set up an irrevocable living trust, you can place personal and business assets in it to:

• Prevent seizure when legal verdicts call for it.
• Establish a source of income or inheritance for your loved ones.

While these advantages of creating an irrevocable trust are appealing, they require adequate funds and an approach that avoids insolvency.

Revise Your Asset Protection Plan

Finally, your asset protection plan changes with your financial situation. For this reason, it’s crucial to always reassess and adjust your strategy to your current situation and new developments in business and finance. This will also help you avoid potential threats before they emerge in your business and personal affairs.

Overall, research and understand the impact of any financial strategy you’re considering on your asset protection plan. Asset protection experts can guide you through this process and help you strengthen your strategy.

Start Safeguarding Your Assets Against Legal Action

Preventing lawsuits entails shielding your assets from plaintiffs and their lawyers. Let Inc Authority show you how to protect your assets before you get sued.

Mitigate threats to your business activities and personal life with effective asset protection strategies. Contact our team today to get started.

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