You’ve worked hard to build your wealth—whether it’s real estate, investments, or a thriving business. But all it takes is one lawsuit to threaten everything you’ve spent years building.
No one likes to think about it, but the reality is lawsuits are more common than you think.
In fact, over 60% of small business owners face lawsuits at some point, and things like high-profile personal disputes, divorce settlements, and business-related claims can easily put all your assets at risk.
That’s why you need to think about how to protect your assets from lawsuits today.
In this article, our lawyers will walk you through real strategies to keep your assets safe from claims, creditors, and other threats. We won’t sugarcoat it—protecting what you’ve earned takes action, but the right moves now could save you years of stress and millions down the line.
So, if you’re serious about keeping what’s yours, keep reading.
What Is Asset Protection?
Asset protection is about putting the right measures in place to safeguard your wealth from potential risks.
It’s not a one-time fix, but something that evolves as your life and wealth grow—and so do the risks.
So, whatever legal strategies to protect assets from lawsuits you’re using now—make sure to regularly revisit them with your attorney and keep your hard-earned assets safe.
What Assets Can Be Taken In A Lawsuit?
If a creditor wins a judgment against you, there’s a whole list of assets that could be seized.
Here are some of the main targets:
Your liquid cash, savings, and checking accounts
Your stocks, bonds, and mutual funds
Your real estate, including your land, rental properties, vacation homes, and your home
(unless protected by a homestead exemption in some states, but more about that later)
All of your vehicles, including cars, trucks, boats, motorcycles, etc.
Your personal property. Think jewelry, art, collectibles, and even household items.
If you’re personally liable for business debts or loans, these could be at risk too.
Your future income, aka wages, royalties, commissions, and even tax refunds
But not everything is fair game. Some assets are protected by law (federal or state), and we’ll talk more about them in the next section.
What Assets Are Protected From Lawsuits?
Knowing which of your assets are protected from lawsuits can give you peace of mind if trouble ever knocks at your door, so here’s what’s generally shielded:
Retirement accounts (e.g., employer-sponsored 401(k)s and ERISA-qualified plans in most U.S. states)
Primary residences or portions of them, depending on where you live (e.g., in states like Florida, you might be able to protect all of it.)
Disability and social security benefits (though taxes and child support are a whole other story.)
The cash value in some life insurance policies, again, depending on where you live.
Certain annuities, state-dependent.
Certain trusts (more about them later).
Keep in mind that these asset protection strategies should be set up before a lawsuit comes into play.
Once the legal battle is on, transferring assets can lead to claims of trust fraud—meaning all your efforts could be for nothing.
What Is The Best Way To Protect Assets From Lawsuit?
Trusts
Trusts are often the go-to strategy for asset protection, but not all trusts are created equal.
For starters, you’ve got your irrevocable trusts. Once you set up one, you no longer own the assets, so creditors can’t come after them in a lawsuit.
On top of that, if you’re worried whether you’ll still be able to benefit from those assets, like income or distribution, that’ll still be possible depending on the terms you set up.
The only important things are that the assets are legally out of your hands and that you have enough funds to make sure the transferring of ownership doesn’t result in your insolvency.
Next, you can also consider domestic asset protection trusts. DAPTs are a type of irrevocable trust specifically designed to protect your assets from creditors, and they’re particularly popular among high-net-worth individuals in the U.S.
The main perk? You can still be a beneficiary of your trust while it shields your assets from lawsuits. The only downside? They’re not available everywhere, and this protection only works in some jurisdictions. Contact ParrisWhittaker attorneys to help you be strategic about where you establish yours.
Finally, you must’ve heard about offshore trusts, and they’re likely your way to go if you’re looking to go full-on international.
These trusts are set up outside your home country—usually in jurisdictions with strong privacy laws and favorable asset protection regulations. And while you may give up some control over your assets, the benefit is substantial protection from creditors and lawsuits, often with an extra layer of privacy.
Keep in mind that these trusts are more complex, and there may be additional costs involved.
Separating Personal And Business Assets
One of the smartest moves to protect your personal wealth from lawsuits is to separate your business (the company you’re running/its debts) from your personal assets (your home, savings, investments).
Namely, setting up an LLC is one of the most common ways to separate personal and business assets. Essentially, if your LLC faces a lawsuit or goes into debt, your personal assets generally aren’t at risk.
Only the LLC’s assets are on the line.
LLPs (Limited Liability Partnerships) are similar to LLCs but are mainly used by professionals like doctors, lawyers, or accountants. They also give partners protection from business-related liabilities, meaning your personal assets stay out of the firing line.
But—there’s a catch (as always).
Courts can “pierce the corporate veil” if they think you’ve been too casual with your LLC or LLP. For instance, if you’ve been using company funds for personal expenses or haven’t followed the proper legal steps to maintain your entity. This could expose your personal assets to creditors.
Insurance Policies
Insurance policies are a great way to protect you and your business against unexpected claims.
First up, you’ve got primary insurance coverages like:
Homeowners Insurance—in case someone gets injured on your property, you want to pick a deductible that’s manageable, but also ensure your liability coverage is solid.
Commercial liability insurance—which, if you’re running a business, you can’t afford to skip on. This insurance keeps you protected if an employee causes an injury or if someone sues you for a mishap related to your business activities.
Worker’s compensation insurance—this one’s a must if you’ve got employees because it covers both you and your staff if someone gets hurt while working, even if they’re not on company grounds.
Auto insurance—if you get into an accident and have the right auto insurance, it will cover the full liability, protecting your assets if a lawsuit comes knocking.
Now, let’s get into the heavy hitter—the one that can truly take your asset protection to the next level: The umbrella liability insurance.
This type of coverage is the backup plan for when things go south. It kicks in after your basic insurance limits are reached, covering the excess amount you might be liable for.
Say your auto insurance covers up to $250,000 in damages, but you’re held liable for $500,000 after an accident. That’s what umbrella insurance is for: covering the extra $250,000 you’re stuck with.
Note that umbrella insurance isn’t just for car accidents or home injuries. It covers other incidents that your regular policies don’t, like libel, slander, false arrest, invasion of privacy, and similar cases.
Oh, and did we mention it’s surprisingly affordable? We’re talking just a few hundred dollars a year for $1 million in coverage.
Retirement Accounts
We’ve already noted that retirement accounts like 401(k)s and IRAs are often considered safe havens when it comes to protecting your assets from creditors.
Thanks to ERISA, these accounts are generally off-limits, unless you’re facing something specific, like a QDRO (Qualified Domestic Relations Order) during a divorce, or IRS levies.
In fact, ERISA is so strong that even in bankruptcy, ERISA-qualified plans are still fully protected. Pretty reassuring, right?
Now, as for the traditional and Roth IRAs, they do get some protection under federal bankruptcy law, but it’s capped. Currently, that cap is $1,362,800—anything above that isn’t covered (as of recent adjustments).
On the bright side, rollover IRAs—funds moved from an employer plan—don’t count toward that limit, meaning they get full protection in bankruptcy.
Important: While federal law offers some protection, state laws can be the wildcard. Some states give IRAs rock-solid protection, while others provide next to nothing beyond that federal limit. So, where you live really matters when it comes to IRA protection. If you’re unsure about how protected you are, a quick chat with a ParrisWhittaker trust litigation lawyer can help you understand your local laws and protect your future nest egg.
Homestead Exemptions
Homestead exemptions are one of the best ways to protect your most valuable asset when things go sideways.
Basically, creditors can’t take everything from you. Your home’s equity is safe—up to a certain limit.
Mortgage holders, tax authorities, and some lien holders (like those for home improvements), however, can still make claims.
But anyway, for most people, the exemption means your home can’t be touched by creditors unless you owe those specific groups.
Some states go all-in, like Florida or Texas, where homestead exemptions are almost limitless—if you meet the right conditions. Others, like New Jersey or Pennsylvania, offer little to no protection at all.
The point is: You need to know what your state offers!
Titling
Titling refers to how you legally own your assets, and while it’s not a foolproof method, it can help shield some of your property if things go wrong, especially for married couples or in specific situations.
One of the most effective titling strategies for married couples is tenancy by the entirety. Basically, if one spouse faces a lawsuit, creditors can’t seize the property unless both spouses are liable for the debt.
This protection, however, has its limits, as it won’t protect against joint debts or federal tax liens. So, while it offers a level of security, it’s not a blanket solution.
On the other hand, joint tenancy with rights of survivorship offers a different kind of protection. This form of ownership allows assets to automatically transfer to the surviving spouse or co-owner upon death, avoiding the hassle of probate. But when it comes to protecting against creditors, it falls short.
Essentially, the degree of protection you can get from titling really depends on the situation and the type of debt involved. While strategies like Tenancy by the Entirety offer a solid shield for married couples’ homes, they won’t protect you from all types of creditors.
It’s also important to note that titling doesn’t protect business assets unless they’re structured through legal entities like LLCs or trusts specifically designed for asset protection. Additionally, any changes made to titles right before a lawsuit may be challenged as fraudulent conveyances, especially if the intention was to avoid creditors.
Avoiding Personal Guarantees
Personal guarantees mean you’re personally on the hook for your business’s debts. If the business can’t pay up, your personal assets—like your home, savings, and even your prized possessions—are fair game for creditors.
Pretty scary, right?
Well, the real protection comes when you steer clear of these guarantees. Without one, creditors can’t come after your personal wealth unless they can somehow “pierce the corporate veil.”
Essentially, that means they’d have to prove you treated your business like your personal piggy bank, mixing the two up as one. If that’s the case, they might get the green light to go after your personal stuff.
But if you’ve kept your business and personal assets separate? You’re in the clear.
So how can you avoid getting stuck with a personal guarantee?
For starters, negotiate with lenders or suppliers to limit or flat-out eliminate the need for one. In some cases, offering alternative forms of collateral—like assets tied to the business itself—can get the job done.
What Are The Differences Between Various Personal Asset Protection Tools?
When comparing these strategies, the degree of control over assets varies significantly.
Trusts, especially irrevocable ones, require individuals to relinquish control over their assets to the trust, which can be a disadvantage for those who prefer maintaining direct access.
On the other hand, LLCs and LLPs allow business owners to maintain full control over their business and assets, though they are vulnerable if the legal separation is not carefully managed.
Insurance policies, while offering coverage for many types of risks, don’t provide asset protection in a legal sense but act more as a financial safety net. Retirement accounts and homestead exemptions offer protection without requiring loss of control, but they come with limitations on the amount of protection and the types of debts they shield against.
In terms of cost, LLCs and insurance policies are generally more affordable to establish and maintain compared to trusts, which can involve complex setup fees and ongoing administration costs. Homestead exemptions typically don’t require significant ongoing costs either.
It’s important to note that state laws play a significant role in how effective some of these protections are. For example, the effectiveness of homestead exemptions and the level of protection for retirement accounts can vary greatly from state to state. Offshore trusts, on the other hand, provide protection that is not dependent on U.S. state law, offering a higher degree of security for individuals looking to shield assets internationally.
Ultimately, the best asset protection strategy depends on the individual’s types of assets to protect, the level of control desired, and the specific legal environment they operate in. Combining multiple strategies, like forming an LLC and using a trust or insurance policy, is usually a smart way to go.
To understand the best option for you and your business, contact ParrisWhittaker lawyers.
