The ABCs of Asset Protection

By Jennifer Reuting, author of Limited Liability Companies for Dummies™

You’ve spent your entire life putting off the pleasure of the moment to build your future. If you are like most entrepreneurs, you’ve toiled and spent many restless nights thinking about how to get your next big idea off of the ground or whether or not to buy this property or that piece of equipment. Perhaps you haven’t been sued yet… maybe you’ve had a few close calls but after a few years you feel as though you are immune. If it hasn’t happened yet, it won’t happen ever, right? Wrong!

This society that we live in gets more and more litigious every day. Before, lawsuits were a form of justice, now they are often used as get-rich-quick schemes by prowling attorneys that make their money playing Robin Hood. The truth is that if you have anything at all – it is at risk of being taken away.

The saddest thing about lawsuits is that even if you win, you lose. Attorneys often play the lawsuit lottery — filing as many as they can just hoping to strike it big. You may have a 50% chance of winning your frivolous lawsuit, but the difference between you and the plaintiff is that you actually have to pay for legal fees. You see, most of the lawyers that file these sorts of cases work on a contingency basis. This means that they don’t charge their client unless they win the case. You on the other hand, could be paying tens (if not hundreds) of thousands of dollars just to defend yourself.

And is this even a gamble that you want to take? There are some pretty damned good lawyers out there — some who never lose a case. Judges and juries are going further and further when it comes to their idea of liability. Stratospheric damages and punitive damages for ridiculous cases are getting to be more and more common place. If you are found to be even remotely negligent, you can find yourself in trouble.

The real victims of frivolous lawsuits are not the plaintiffs, but the defendants. The targets of today’s lawsuits are the middle to upper class folks that have equity in their homes, own small businesses and/or have saved for retirement.

There are over 1 million attorneys in this country. Compare that to the 30 million adults in this country that fit the above profile (a little under 30% of the entire adult population). If each lawyer files an average of 19 lawsuits per year, you do the math. Yes, they do also sue businesses, but it’s the average adults that own those businesses. Like I said, if it hasn’t happened to you yet, it’s only a matter of time.

• A woman in West Virginia was awarded $2.2 million when she hurt her back opening a pickle jar. She also received over $130,000 in compensation and over $170 for emotional distress.
• The parents of a man that was found dead and naked (that’s strange!) on the back of a killer whale are suing Sea World. Apparently, he had slipped past security and decided to swim in the killer whale tank. The parents are alleging that Sea World is at fault because the company portrays killer whales as being friendly. Not to mention it’s named a “killer” whale, but should we also sue Disney for portraying lions as friendly in the Lion King?
• A Louisiana woman is suing Nintendo after her 30-year-old son had a deadly seizure. Apparently, he played the game eight hours per day, six days per week for over 18 months. He had four seizures previously because of this behavior, but that didn’t deter him. There is now an epilepsy warning on every Nintendo that is sold. In another case, a woman won a large award after her son suffered a non-deadly seizure after playing to long.
• An Ohio street maintenance worker that volunteered as a youth baseball coach was sued by the parents of his catcher for bad coaching. Was it because he yelled at the kids? Nope. They just didn’t win any games and the father wanted his son to go to the tournament in Florida.
• You know those rooftops that you used to watch baseball on from afar when the game was sold out? Well, the Chicago Cubs are suing the 13 businesses that border Wrigley field for selling access to their rooftops during the games.

There is a way to protect yourself and your business. Luckily, while America is a very lawsuit-friendly place to live, it also protects the entrepreneurs and risk-takers that make this country great. Entities such as corporations and LLCs were created for just that purpose, and you would be silly not to use them! You see, when you operate your business out of a corporation or LLC, you are no longer personally responsible for any of the debts or lawsuits of your business and all you have to lose is what you put in. Your home, your car, your bank account and kids’ college funds are safe. This is called the “corporate veil” and it is the most valuable protection that one can have.