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Protecting Your Assets From Your Own Money Scripts

Vault representing protecting your assetsAsset protection is about protecting what you own against someone else taking it. The most common ways to lose assets are divorce, bankruptcy, and judgments filed against property as the result of a lawsuit.

Putting your assets beyond reach of a judgment resulting from a frivolous lawsuit is the heart of a good asset protection strategy. It includes owning your assets in trusts, LLCs, or corporations that are located in multiple jurisdictions.

Yet when I suggest asset protection strategies to clients, they often respond with ambivalence or reluctance. I’ve begun to realize these reactions may be tied to money scripts.

Commons Money Scripts tied to Asset Protection

One common money script is “I have liability insurance so I don’t need to do all that other stuff.” Liability insurance is all you need—IF the claim isn’t more than your insurance coverage, your policy is in force, your company doesn’t deny the claim, and your company doesn’t go bankrupt in the middle of the lawsuit. I experienced three of those four exceptions when a baseless lawsuit was brought against me many years ago.

“If you are “lucky” enough to have a lot, it’s petty and selfish to want to protect it.” Protecting a business that provides jobs or an inheritance that supports charities can be a selfless and loving thing to do.

“Asset protection is only for the very rich—and having several thousand in a portfolio or owning a business or some rental property doesn’t make me rich.” Rich is a very relative term. Whatever you have is all you have. The older you are, the less the chance you’ll ever be able to replace it if it’s taken from you.

“Asset protection is illegal, or at best shady and unethical.” Many people associate asset protection with hiding assets illegally. This is not what any reputable professional will advise clients to do. And what about the lack of ethics of the guy who brings a totally baseless lawsuit against you, hoping you’ll write a big check to make him go away?

“People in general can be trusted, so asset protection isn’t necessary.” Just ask anyone who’s ever been through a nasty dissolution of a partnership if they fully trusted their partner when they went into business and how strong that trust was at the time of the breakup.

“As long as you are honest and ethical, you don’t need asset protection. You won’t get sued unless you do something wrong.” This one is similar to the belief, “If you’re good and take care of other people the Universe will provide for you.” Sometimes bad things happen to good people.

“If I get sued, it will be because I must have done something wrong and deserved to be punished.” Right. Put that one in with, “No one who’s innocent ever goes to jail” and “Justice always prevails.” It is surprising how often people of perceived wealth are the targets of frivolous lawsuits. While most cases are without merit and are eventually dismissed or decided in favor of the defendant, it takes a lot of time, energy, and money to defend against them. Plaintiffs hope to gain a settlement from a defendant unwilling to go to that trouble and expense.

“It’s wrong to prevent people from collecting damages if they have been hurt.” If you have genuinely injured someone, you have an obligation to make that right. Protecting yourself with adequate liability insurance helps you do so.

Ethical asset protection strategies are not a way of avoiding responsibility and protecting yourself from the consequences of your own wrongdoing. Their primary purpose is to protect you from the wrongdoing of others.

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2 Responses to Protecting Your Assets From Your Own Money Scripts

  1. Richard Trachtman May 23, 2011 at 6:49 am #

    Right. There are greedy and litigious people out there who will file suit trying to take advantage of anyone they consider vulnerable or against whom they have some grudge. But you don’t mention the cost of setting up trusts in multiple jurisdictions. I too have been subject of baseless suits. In both cases either the insurance company paid or the legal costs to defend ourselves were less than setting up trusts would have been. Frankly, those must likely to be sued are those who others perceive as having deep pockets whether this perception is accurate or not. Medical doctors and financial professionals fit that bill. For teachers, social workers and computer technicians the likelihood of being sued and having a sustainable judgment made against you that is greater than your liability insurance would pay should be weighed against the costs of having both liability insurance and going to all of that additional cost of setting up trusts. Do have liability insurance (to protect basic assets) and have your agent periodically review how much you need and the security of the company you are using. And be sure that you are providing ethical and courteous service and that your sidewalks aren’t cracked and are clear of ice.

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