What have you got to lose in court? More than you think. There are a lot of assets that can be taken in a lawsuit. But there are a lot of ways to protect yourself, too.
“America is a litigious society,” says Alice Jump, a partner at the law firm Reavis Page Jump. “By some estimates, there are over 40 million lawsuits filed every year. Litigation is not fun—except maybe for the lawyers.”
Consider this recent example from attorney Nat Nason in Florida. A property owner failed to pay a roofer the final $3,500 on a contract, and the roofer filed a lien. The roofer was awarded a judgment against the homeowner, who paid the $3,500.
“But that didn’t satisfy the roofer’s claim for attorneys’ fees and costs, which were about 10 times that amount,” Nason says. “The roofer was allowed to pursue his lien pending payment of those fees and costs. So legal proceedings and resulting judgments can have consequences that are sometimes unexpected—and sometimes turn small consequences into big ones.”
Suddenly, the homeowner was on the hook for more than $35,000, and the court had ways of helping itself to his money—including, potentially, taking his home.
You can lose a lot in a lawsuit, including your home, car and life savings. If you lose in court, you’ll have to disclose all of your assets, and you might lose money and property if you aren’t careful.
Insurance can protect you, but it has to be the right insurance.
“What can be taken from you if you are liable in a lawsuit for personal injury?” asks Ted Kaplun, a personal injury lawyer and founding partner of the KaplunMarx law firm in Pennsylvania. “The answer is everything.”
The most common type of liability lawsuit in which you stand to lose assets is one resulting from an accident, say experts. Zhaneta Gechev, who was an assistant manager for a major insurance company, saw many such cases.
“Attorneys filed claims against [people’s] liability coverage,” says Gechev, who founded One Stop Life Insurance. “Unfortunately, many people are not aware they are way underinsured.”
Here’s what you can lose:
Some states allow you to identify a few thousand dollars in an automobile and personal property as exempt from garnishment, says Steven Mikuzis, a principal of Power Risk Management Services in Illinois, a risk management and insurance brokerage firm.
For example, you can claim an exemption of up to $1,000 of your vehicle’s value under Florida law. In other words, your vehicle can’t be taken to satisfy a judgment unless the car’s value, minus all debts for which the vehicle is collateral, is greater than $1,000. Your state’s laws may differ.
If there’s a judgment against you, experts say you could lose your home, particularly if it’s a second home. But it’s a little complicated. Under most circumstances, a lien would be filed against the home. If you want to sell the house, you would have to pay off the lien.
However, your home may be protected under homestead exemptions, which vary from state to state, according to Steven J.J. Weisman, an attorney and professor at Bentley University in Massachusetts.
“Homes can also be protected for married couples by owning their home as tenants by the entirety,” he says. (“Tenants of the entirety: is a legal term that means each spouse has an undivided interest in the property.)
Savings accounts usually are fair game in a lawsuit. However, retirement accounts, such as a 401(k) and IRAs, are typically protected from a liability lawsuit.
Note that although 401(k) retirement plans are protected under the Employee Retirement Income Security Act of 1974, individually held IRAs get only a partial exemption in bankruptcy. So you would have to rely on state laws for protection.
Seriously, anything.
When Mario Iveljic, a partner at Mag Mile Law, issues a citation to discover assets in Illinois, he leaves no stone unturned. His firm asks for all checking and savings accounts, partnership agreements and records of partnerships, real estate (including timeshares), trusts, contents of all safety deposit vaults, titles to all properties and a complete list of jewelry, art objects and personal property. “A defendant could lose his car, cash, or other assets to satisfy a judgment,” he says.
But how does the court know about your assets? A creditor can require your appearance at court for an asset hearing, where the creditor can ask you questions under oath about your assets and demand you produce documentation regarding your wealth and ability to pay.
“Failure to appear at an asset hearing generally results in a bench warrant being issued for your arrest,” says James M. Wirth, an attorney with the Wirth Law Office in Oklahoma.
“The creditor can then request a cash-only bond in the amount of the judgment. That could cause you to be held in custody until the judgment is paid in full, a new asset hearing can be held, or the judge lowers the bond,” says Wirth.
If the creditor believes that you have certain assets that could be sold to go toward the judgment, the creditor can request a writ of assistance ordering law enforcement to accompany you to your home to inspect and confiscate non-exempt property.
Thinking of hiding your assets? It’s probably a bad idea, says Christopher T. Vrountas, a partner with Vrountas, Ayer & Chandler.
“I had a case where the debtor transferred his house to his daughter, through a series of trusts, to avoid the $2 million debt he owed the bank,” he recalls. “The court granted my motion to force his daughter to reconvey the property to the debtor, under the doctrine of fraudulent conveyance, so the bank could seize it and auction it off.”
Just because they can take your assets, does that mean they will? Not necessarily, says Tina Willis, a personal injury lawyer in Florida.
“I think the most important thing to understand about injury lawyers is that, regardless of what we theoretically could do, as a practical matter, we very rarely seek personal assets,” she says. “We are looking for insurance funds, and very frequently turn down new cases, or withdraw from existing cases, as soon as we realize that there is no insurance.”
The exception? A “truly” catastrophic injury, like paralysis, amputation, blindness, severe burns, any lifelong disabling injury, or a death. Then, says Willis, lawyers would look closely at whether the defendant had any likely collectible assets.
“But the key is likely collectible,” she notes. “We have to make this judgment call—an educated guess—before deciding to spend hundreds of hours, and tens of thousands of dollars of our own money fronting costs, on a case that might lead to zero recovery, and an unhappy client, in the end.”
Another time when they’d try to collect: When you have a lot of money but have little insurance to protect you.
“The likelihood of someone attempting to go after your personal assets increases if there is a significant disparity between the value of your assets and the amount of liability coverage you have,” says South Carolina personal injury attorney Kenneth Berger.
For example, if you have the equivalent of $1 million in assets, and little or no liability coverage, you could be vulnerable. It’s more likely the plaintiff’s attorney will look to personal assets in addition to the insurance coverage to compensate the injured person or satisfy a large damages award.
If you’re concerned about what assets can be taken in a lawsuit, there’s one way to protect yourself: Liability insurance. It pays others when you accidentally cause injuries or property damage. It’s available as liability car insurance and within homeowners, renters and condo insurance policies.
Liability insurance covers:
“Liability insurance is tremendously important,” says Rob Glickman, a managing partner at McCarthy, Lebit, Crystal & Liffman Co. in Ohio.
“Imagine getting close to retirement, having paid off a home, saved over $1 million for retirement—and then being in an auto accident which left the victim paralyzed. Those cases can result in eight-figure judgments. Without insurance, that one accident could cost the driver everything he has built up over a lifetime of hard work.”
Do you need liability insurance? Yes.
“Without liability insurance, you’re responsible for damages and injuries, if you caused them,” explains Lev Barinskiy, CEO of SmartFinancial Insurance. “This can happen in a car, in your home or your business.”
Business liability policies typically cost no more than a few hundred dollars annually, says Zeshan Jeewanjee, CEO of One Day Event Insurance, a specialty provider of liability insurance. “It can save you tens of thousands of dollars in the long run, so it is always worth it to have on hand,” he adds.
But even with liability insurance, sometimes damages and injuries cost more than an auto or homeowners insurance policy’s limits. There’s an insurance solution for that, too: Umbrella insurance. And it’s particularly important if you have assets or wealth that you need to protect.
Umbrella insurance is a standalone policy that adds extra coverage to your existing liability insurance.
“For example, what if you were sued after a car accident and you lose the lawsuit for an amount that far exceeds what your car insurance company will pay?” asks Barinskiy. “Or, what if someone came to your home and tripped over your front steps and ended up in the hospital? Your homeowner’s insurance offers liability, but what if it doesn’t cover all the medical expenses? That is where umbrella insurance comes in.”
Umbrella policies could save your assets when something goes catastrophically wrong.
“Excess liability insurance allows you to protect yourself from catastrophic events for which you may be held legally responsible,” says Fran O’Brien, the division president of Chubb Personal Risk Services. “It provides additional protection for your personal liability as well as liability for your ownership or operation of a home, auto or watercraft.”
Another insurance benefit: Almost every policy includes what’s called a duty to defend.
“This means that the insurer will hire lawyers to defend you, at no cost to you,” says Miguel A. Suro, a Miami attorney who publishes a lifestyle blog called The Rich Miser. “The last thing you want is to be involved in a lawsuit and have to pay thousands upon thousands of dollars to lawyers.”
Kay Van Wey, a lawyer and patient safety advocate in Texas, says in today’s litigious society, you can’t have too much insurance.
“Buy as much as you can afford,” she advises. “Sometimes the insurance agent wants to sell you a ‘cheap policy,’ but finding the cheapest insurance isn’t always the best. Buying more coverage is not that much more expensive.”
“The availability of insurance can significantly reduce out-of-pocket losses to the policyholder,” says Adam Yasan, managing director of Berxi, the small commercial insurance division of Berkshire Hathaway Specialty Insurance.
Having plenty of liability coverage and an umbrella policy—and being careful—may protect you and your assets. But nothing is perfect.
Even if someone has you cornered in a lawsuit, there’s still a way out: You can file for bankruptcy.
“Many times, entering a judgment results in a defendant’s bankruptcy filing, from which there are no winners,” says David B. Lever, a senior partner at Lever & Ecker in New York.
That’s why so many cases eventually settle. Almost any assets can be taken in a lawsuit—but that doesn’t mean they will
What Exactly Can Be Taken From You In A Lawsuit?
