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Strategies for Retiring Young, Soon, and Wealthy
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| Aug 22, 2005 8:51 pm |
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Family Finances: Protect your family from lawsuits |
Lajon Webb
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Friday, July 29, 2005
By Alan Lavine and Gail Liberman
You might think your family is unlikely to be sued. But it can happen.
Most of the 70,000 U.S. civil lawsuits filed daily target small business owners and people with less than $1 million in net worth, says Douglass S. Lodmell, co-author of "Lawsuit Lottery" (World Connection Publishing). Your net worth is the value of your assets less liabilities or debts.
Could your family be a target some day? Possibly. Experts estimate that 80 percent to 90 percent of the small businesses in America are family-owned. Businesses are a favorite target for lawsuits.
Even if you don't own a business, you could face legal challenges if you or family members get into a car every day, given the high rate of car accidents. A contractor could get injured while working on your property and sue. Or, somebody driving the family car could be involved in a collision.
We've heard from property-casualty attorneys that too many families fail to obtain relatively inexpensive umbrella insurance policies. These insurance policies provide coverage above your primary insurance limits for damages arising from personal injury and property damage. Umbrella insurance kicks in when your underlying auto and homeowners insurance limits are exceeded.
"The U.S. civil justice system has been corrupted into a gigantic get-rich-quick lottery," Lodmell said. "Americans sue each other for every conceivable complaint, regardless of merit."
So how can you protect yourself against a lawsuit, besides considering an umbrella policy? Lodmell, a Phoenix attorney, serves up the following tips:
Take legal steps to make yourself unattractive to potential predators. This means hiring a good lawyer to set up the proper legal shields.
Don't flaunt your wealth. If you act like you're a millionaire, drive luxury cars and talk about extravagant vacations, someone may try to nail you.
Don't shun prenuptial agreements before marriage. They're important to consider -- possibly for both parties -- if one spouse-to-be has substantially more money than the other. These agreements also can protect children from previous marriages. Be advised that both parties in prenuptial or postnuptial agreements need legal representation. If a prenuptial agreement is out of the question, consider a life insurance policy and name your children and/or other loved ones as beneficiaries.
Take time to find a good attorney in advance of any problems.
It is particularly important to protect your family from liability if you are in a risky profession, or if you and/or your family own a business.
A majority of businesses fail in the first three years. Business partners often fight over remaining assets in the company. Employees may sue business owners for employment-related issues, such as discrimination or sexual harassment. Employers also may be held accountable for their employees' actions.
There are ways to protect your assets from lawsuits. In addition to liability insurance, business people can consider shifting assets out of their names. They can use family limited partnerships, limited liability companies and international asset-protection trusts. Consult with an experienced attorney to help make the right moves.
Don't, however, neglect tax implications. The IRS, for example, has been cracking down on family limited partnerships and heavily auditing them. So make certain you find someone who is up on the latest cases. Also, attorneys advise that some asset-protection trusts, unique to certain states, have not been thoroughly tested.
Lodmell advises that employers set up binding arbitration and alternative dispute resolution agreements with all staff and everyone with whom they do business. The American Arbitration Association estimates that about 80 percent of the disputes it mediates are resolved without litigation.
Business owners also should always take care to warn customers about any potentially dangerous situations. Providing blatant advance warning may make it harder to get sued.
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(Spouses Alan Lavine and Gail Liberman are syndicated columnists. Their latest book is "Rags To Retirement," published by Alpha. Contact them at mwliblav@aol.com.)
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