As discussed in the previous article, there are very few of your assets that are protected from creditors in the event of a lawsuit. There are some simple steps that you can take to address your asset’s vulnerability to attacks by creditors.

  1. Buy insurance. You should have a liability insurance policy on your car, on your home, on your business, and an umbrella policy.

  2. Review ownership of assets. You could transfer assets to a less risky spouse. Of course, this assumes that your marriage is strong (otherwise it can be very messy in the event of a divorce). Furthermore, if the less risky spouse dies, then the assets may pass back to the surviving spouse. That’s why a Trust may be a much better alternative.

  3. Limited Liability Company. It is never a good idea to own an investment property in your own name. A lawsuit relating to this property could jeopardize all of your personal assets. But if the property is owned by an LLC, then the injured party can only reach the assets of the LLC.

  4. An Irrevocable Trust. A Trust for the benefit of your spouse and children, in which a Trustee has discretion over distributions, provides the greatest asset protection. Designed properly, a beneficiary can even act as a Trustee and still have creditor protection.  Of course, this Trust cannot be funded if creditors are already suing you.

There are other, more complex strategies for asset protection. However, even taking some simple steps can provide you a greater peace of mind and protection from creditors.