Many people believe that they will never be sued so they don’t bother to protect their assets. After all, you know you’re not a bad or negligent person. You know that you would never put someone else at risk.
But here’s the thing, being sued is a lot more common than you might think and it isn’t just bad actors or large companies that get sued. It is unfortunate, but some people choose to abuse our legal system and their eye roll-inspiring lawsuits can put your assets at risk.
According to the National Center for State Courts (NCSC), there were over 84 million new lawsuits filed in the U.S. in 2016 alone. The population of the U.S. is approximately 325 million which works out to one new lawsuit each year for every four Americans. Statistically speaking, it is very possible that you could find yourself being that one in four in any given year so it is wise to protect yourself now.
1 in 4 sounds high, and it is, but you should also be aware that this increases during times of financial and economic turmoil. In 2008, the total incoming caseloads in state courts reached an apex of just over 106.1 million cases at the onset of the Great Recession. This changes our 1 in 4 number to 1 lawsuit for every 3 Americans. No matter whether we’re in a good or bad time economically speaking, your hard-earned assets can be at risk if you are sued.
Actual Frivolous Lawsuits
Statistics can be dry and hard to relate to so I wanted to share some stories of actual frivolous lawsuits that happened in recent years.
- When a simple everyday task goes awry due to a litigious person
If you’ve ever bought or sold anything on Craigslist you know this is a simple task but it got much more complicated for a Massachusetts man named Doug Costello. In 2009, Costello sold his old black-and-white printer for $40 plus shipping to Gersh Zavodnik in Indianapolis, IN. Sounds simple enough right?
What Costello didn’t know was that Zavodnik had filed hundreds of lawsuits seeking enormous awards in damages. Zavodnik’s suit claimed that the printer was missing parts and malfunctioning but this case was dismissed because he had thrown away the printer.
But of course, that’s not where this story ends. Zavodnik filed another lawsuit requesting damages for “breach of contract, fraud, conversion, deceptive advertising and emotional distress.” In 2015, a judge issued a $30,000 judgment in Zavodnik’s favor for breach of contract that was reversed on appeal. It’s not over yet though, the appeals court has asked the trial court to determine if the entire case should be dismissed but by this point, Costello had been dragged through more than 6 years of costly legal proceedings due to no fault of his own.
- People who want to blame others for their mistakes
A worker replacing the letters on a sign at Georgia Publix grocery store in February 2011 took all the proper safety precautions before getting climbing the extending ladder. A woman by the name of DeToya Moody parked her vehicle behind the truck. Moody walked past the truck and underneath the ladder, then turned and went back to the car to get something, before walking back to use an ATM machine near the truck.
Video surveillance shows Moody holding her phone in front of her face when she walked directly into the clearly marked orange ladder and collapsed onto the ground. She was taken by ambulance to the DeKalb Medical Center where a doctor diagnosed her with post-traumatic headaches, a mild concussion, and a slight indentation in her head. You might think this was clearly her fault, but she sued the worker’s employer anyway.
The employer offered to pay $5,000, which Moody rejected. A DeKalb County jury found that Moody was only 8% liable for her injuries and she was awarded $161,000. It is clear that this woman was simply not paying attention to where she was going but it cost the defendant $161,000, time off of work, and the stress of the trial.
- Petty disputes
Brendan Vezmar of Austin, TX. sued a woman who joined him on a first date to see Guardians of the Galaxy 2 because she was texting during the film. The lawsuit sought the cost of the movie ticket, $17.31.
When Vezmar called the woman and asked her to reimburse him the $17.31 she understandably refused. The suit pressed on and the CEO of the movie theater, Alamo Drafthouse, even offered a gift certificate for the full cost of a ticket to settle the lawsuit.
In the end, the woman decided to reimburse the man for the cost of the movie to get him to leave her alone. Some people are willing to clog up the judicial system just because they’re grumpy about a disappointing experience.
- Unintentional injury
A Delray Beach lawyer claimed that a Boca Raton lawyer, who he was on good terms with, shook his right hand so hard he’s been in pain for years. The plaintiff, George H. Vallario, Jr. insists Peter Lindley squeezed his hand and caused “severe pain” while the friends were attending a birthday party for two children at a Boca Raton home in 2014.
The 76-year-old plaintiff says that he screamed, “holy cow!” and has said that he may not have sued if 60-year-old Lindley would have just apologized. Lindley denies that his handshake could have caused an injury. Vallario is seeking more than $100,000 in damages, or, he says, “as much as I can get,” for past and future pain and suffering.
Whether Lindley actually unintentionally harmed Vallario, he is going to have to deal with taking time off for court hearings. It is very possible that he will also have to pay $100,000 or more in damages, most of which will likely come from his assets if they are not properly protected.
How Your Assets May Be At Risk
Many people don’t realize that their assets may be at risk if they are sued regardless of whether they’re at fault or not. Many of the previous examples would not have been covered by liability insurance and that exposes the plaintiff’s assets to the defendant’s claims.
Asset protection is not just for rich people. It is no longer the case that only the super-rich are targets for lawsuits. How would you feel if you lost your home, car, and savings? Wealth is relative and anyone with assets needs to protect them. It is more difficult for someone who is not in the top 1% to replace lost assets due to lawsuits.
If someone sues you and they win, the winning party (now your creditor) will likely hire a collections law firm to squeeze you until you pay. It’s possible that they could go after your bank accounts, wages, real estate, vehicles, boats, personal items, and more. What is really at risk here is your financial future, and your ability to someday retire.
Simple Steps To Protect Your Assets
The possibility of losing your assets is daunting, but there are simple steps you can take to protect your assets and your financial future.
- Buy an umbrella policy that protects you from personal-injury claims above the standard coverage offered in your home and auto policies.
Umbrella coverage is backup insurance that can be used in the instance that your other coverages are inadequate. In the event that your auto, homeowners, or other liability coverages are exhausted, umbrella coverage pays benefits up to the limit of the policy. For example, if you have $1 million in auto liability and get hit with a $2 million judgment, your umbrella policy will pick up the additional $1 million in coverage. Otherwise, the plaintiffs could start coming after you to seize assets for damages. Typically, these policies get underwritten for $1 to $5 million in face value. The good news is that this type of insurance is usually very affordable.
- Contribute to retirement accounts
This may sound like an odd tip but federal law provides unlimited asset protection to ERISA-qualified retirement plans and up to $1 million in assets in an IRA in the event of bankruptcy. Some states provide even more protection to IRAs, though some states have opted out of the 2005 Bankruptcy Reform Act’s federal bankruptcy exemptions and exempt a lesser amount.
Check the laws in your state to see how much protection is provided to funds in these accounts. Speak to an attorney familiar with the laws in your state to determine whether creditors can opt between the state and federal exemption amounts.
If your state has a generous exemption, consider moving cash you won’t need until you reach at least age 59 1/2 into one of these protected entities. Bear in mind that you will be restricted by an annual contribution limit, which varies depending on the type of retirement plan. If you go over this limit or withdraw funds prior to age 59 1/2, you may be assessed penalties. Retirement accounts are excellent vehicles to protect long-term savings, and provide substantial tax benefits, but need to be thoroughly understood and used with care.
- Don’t rely just on your insurance
Don’t put all of your eggs in the insurance basket and assume that you’ll be covered no matter what happens. Exclusions are written into policies to allow insurance companies to achieve their goal of making money while minimizing losses. This is not a knock on insurance companies, they are a business and their goal is to generate profits. The methods that insurance companies use to control potential losses are through the exclusions in the contract so familiarize yourself with the exclusions in your policies.
- If you own a business or are self-employed, use the right business structure to protect your personal assets
If you own a business, it’s important to choose the right business structure to protect your personal assets. LLC’s, certain types of trusts, and corporations can provide you with some serious legal protections if they are properly set up, organized, and maintained. It’s important to note that you can’t just form an LLC and do anything you want.
For example, once you have an LLC you have to be extremely careful about not mixing your business assets with your personal assets. This is where many people go wrong. They figure that the purpose of the LLC was to hold an investment property, so it should be okay for them to start living off the rental income each month. Right? Wrong! If you have been using the business funds for personal living expenses, then when a claim arises, and the LLC’s bank account is empty, the court can disregard the LLC. The rationale is that since you didn’t treat the LLC as a separate business, then the court and the plaintiff can disregard it as well. The court can then enter a judgment against you personally.
So the moral of the story is, using a legal entity like an LLC can be a very smart move but be sure to keep careful records of your business-related transactions, and never mix business with pleasure.
- Don’t wait to protect yourself
You can’t wait until the lawsuit is imminent before you make these moves. If you do, the courts could rule that your transfer of funds into a protected class is a fraudulent conveyance and disallow the transfer, leaving those assets exposed.
Unless you have no assets to protect or are unconcerned about potential future lawsuits, you need to take steps today to protect yourself and your lifetime of earnings. Many people get overwhelmed by the process and do nothing- which in many cases can be financially devastating. If you do not feel competent to handle this on your own, you should consider seeking the services of an attorney or other professionals who can assist in your overall plans and help you achieve your financial and other goals.
Get started today by scheduling a consultation with us here. You’ll have the opportunity to talk to Paul about your situation, hear your options, and decide if Paul is the right lawyer to help you protect your money from unseen events.