|
WPG
Articles : Asset Protection |
|
Could You Lose All You Have In A Law Suit? |
|
By Ray Chodos, Founder of the Wealth Preservation Group™ |
|
|
 Wealthy families are vulnerable to losing much of their wealth as a
result of legal action, accident, or catastrophic illness. The use of
trusts, partnerships, and limited liability companies domiciled in
favorable jurisdictions does keep litigants and creditors at bay.
Litigation lottery
Common sense dictates that a society’s legal system should discourage
wrongdoing by imposing punishment and reparations on those so deserving.
Our legal system has been manipulated and reconfigured to the point that
only those that can pay are sued so as to produce financial rewards for
claimants and their lawyers.
Affluent people are more likely to be linked by creative lawyers to being
legally responsible for damages even if the correlation is quite
indirect. If you sue enough affluent defendants, you will likely get a
settlement or judgment in your favor eventually. Litigators scrutinize
the respondent’s ability to pay before even the merits of the plaintiff’s
complaint, lest they risk being uncompensated. The legal system to which
we all are subject is not intuitive, and results in often unpredictable
results having serious impact on affluent families under the noble
mission of “righting a wrong.”
Divorce is an unfortunate eventuality of nearly half of American
marriages. Rarely is such an event smooth, and ultimately result in
settlements perceived to be fair by both parties. Business and
professional relationship disputes have a similar perilous potential with
each party positioning for advantage in the reconstituted remaining
business. Civil tort litigation has facilitated involuntary transfers of
over 235 billion US dollars of wealth in 2003 alone.
Sue over what?
When you consider how often we buy, sell, rent, employ, borrow, and
disagree with others it is difficult to imagine not ever being named in a
significant litigation claim. Many serious risks like divorce, business
co-owner disputes, and employment wages are not insurable. For the events
that are insurable (Car accidents), there are exclusions, exceptions, and
monetary claim limitations on all policies. What is discrimination
exactly, how about harassment? When is it wrong to discharge an employee
and how should it be done?
If you are a professional, your malpractice or errors and omission
coverages are limited. As an executive in a larger company, you can be
personally responsible for the accuracy of corporate financial reporting
(Sarbanes - Oxley). In the final analysis any unsatisfied claimant can
theoretically engage the best lawyer on a fee contingency basis (no cost
to plaintiff) to intimidate and litigate anyone with the means to pay by
linking that party somehow to the damage causation. Many claims are
settled without trial to avoid embarrassment, discomfort, and risk of
verdict. Naturally, this practice encourages more litigation.
What can a reasonable person do to insulate against financial ruin?
We cannot predict all events that may cause someone to feel damaged by us
in some theoretical legal way. We cannot prevent being named in a
litigation “sweep” that covers anyone connected to the claimant’s event.
We cannot make ourselves paupers in order to be in a position to not lose
something of value. We can title our major assets in such a way as to
become unattractive to litigate by removing the financial gain incentive.
Titling of assets may incorporate legal entities that preclude attachment
to underlying assets of the entity. All states offer Limited Liability
Companies, Limited Partnerships, and various trusts, some jurisdictions
are more favorable to asset owners than others in the United States.
Offshore jurisdictions offer laws that are even more effective since they
are immune from US judicial rulings. A series of legal obstacles and
impediments discourage claimants and their legal representatives from
suit and promotes negotiation by removing the financial gain incentive. A
well-designed program retains all major assets and control locally while
domiciling the legal entity that would need to be sued in a favorable
jurisdiction.
To reduce attraction to “deep pockets” entities holding major assets
need not identify the owner family name. Also, a revocable living trust
in lieu of a will avoids public exposure available to anyone that wishes
to read the document once probate is complete. Should outsiders be privy
to who got what in your family? Revocable trusts do what a will does, and
more in the event of incapacity without the public probate process. There
are administrative and probate cost avoidances when revocable trust is
used in place of a will.
Asset protection has become as common as estate planning for affluent
clients aware of the perils. Wealth preservation planning can and should
be incorporated into estate planning, business ownership succession, and
financial planning efforts. The cost associated with quality planning as
describes above is several days of the asset owner’s time devoted to
learning so as to enable informed choices. The professional fees are
$6,000 and up depending on complexity and degree of risk exposure. The
cost is modest in relation to the legal and time cost of defense of even
one event, even if you win. Aside from health, what is more important
than protecting all we own? |
|
|
|
Ray Chodos is a member of the Wealth Preservation Group, LLC, (WPG) of
Greenwich, Conn., a firm that specializes in serving the asset-protection
concerns of business owners and their advisors. www.WealthPreserve.com. Ray
Chodos can be reached at raychodos@WealthPreserve.com. |
|
|
|
 |
|
|
| |
 |
|
|
|
|
|
|
Impact of Litigation on Small Business |
 Most
companies used business assets to pay the damages. However,
in the case of employee complaints, insurance covered some
of the damages. Owners mentioned that the payment of
damages nearly put them out of business, which affected them
for a long period of time as they worked to rebuild the
business and recoup their losses. |
|
|
|
|
|
|
|
|
|
|
 |
|
|
|
|
|
|
|
|
While sitting at a traffic light
waiting for the green light, you are slammed from the rear by a
drunk driver who never saw you and didn't even attempt to stop.
Clearly, you are an innocent victim with no fault in the accident.
