How to Safeguard Your Assets in a Lawsuit

Here is a nightmare scenario: You sold your business and retired five years ago. You have saved enough to live a comfortable retirement. Today your biggest concern is which golf course you plan to play and where you feel like going for dinner. And out of the blue you are served papers informing you that you are personally named in a lawsuit!

Apparently, that business you sold had an environmental issue that you didn’t know about and somebody got sick…really sick. Some personal injury attorney found out about that nest egg of yours and BANG…now you are looking at defending your assets. The assets you worked your whole life to create and are now providing you a great lifestyle. How do you protect your hard-earned nest egg from the evils of our litigious society? Lets take a look at a few ideas.

Tenancy by the Entirety

One of the easiest things you can do to help protect your account from creditors is to make sure that the account title makes it difficult for a creditor to attach. Tenancy by the entirety is one such method, however it is only an option if you are married and jointly own the account with your spouse.

Tenancy by the entirety is a more common form of ownership for real property; however there are currently 13 states that allow such a form of ownership for an investment account. Florida is one of those states.

In a tenancy by the entirety, each person effectively owns the entire account. Therefore, neither can deal with the property independently of the other. The main advantage of this is that judgment creditors of one party cannot enforce their liens against the property. So if one person were named in a judgment but not the other, the account could not be used to pay the judgment.

Tax-advantaged retirement accounts

Retirement accounts such as IRA’s, 401(k)’s Deferred Compensation plans, pensions and SIMPLE’s are protected from creditors as well.


Similar to retirement accounts, annuities provide a safe haven from creditors. Under normal circumstances, annuities are not a good investment option because of the typical high costs and low returns associated with them. The worst of the lot tend to be those that are sold through brokers. But if protection from creditors becomes a paramount issue, you may want to look into a no-load annuity.

Life Insurance

The cash value built up inside a life insurance policy follows the same protection that annuities have. This isn’t a good strategy if there is no need for life insurance though. Also, the IRS imposes restrictions on how much cash you can pump into a life insurance policy and still have it qualify as life insurance. This is one area where a mistake could be very costly.


Finally, your homestead is a terrific place to provide safety from creditors and judgments. The idea is simple enough…pay off your mortgage and nobody else but you can get at the equity.

The overarching point here is to be proactive and make sure your assets are protected. Schedule an appointment with a competent financial planner and review how your assets are titled. Are you safe?

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