How to Protect Yourself from Frivolous Lawsuits

Strategies to Avoid Frivolous Lawsuits

Frivolous lawsuits are a growing concern in the United States. They pose significant financial and emotional burdens on individuals and businesses.

In this article, you will find key insights and practical advice to help you safeguard your assets and peace of mind against unwarranted legal action.

Understanding the Cost and Prevalence of Frivolous Lawsuits

America’s legal system is the most expensive in the world. Lawsuits cost significantly more than in other countries.

In the US, there is about one lawyer for every 250 people, creating a fertile environment for frivolous litigation. This, plus contingency fee arrangements and many state and federal laws, makes the US prone to lawsuits.

Examples of frivolous lawsuits include:

• In 2017, Kyu Taik Chung sued an apartment complex in New Jersey. He tripped over a Christmas tree left for trash pickup, claiming the owner was negligent.
• In 2014, lawyer George H. Vallario, Jr., sued another lawyer in Florida. The suit was over a handshake. Vallario sought $100,000 for pain.
• In 2011 in Georgia, DeToya Moody walked into a lowered orange bucket truck ladder while distracted by her phone. She won $161,000 in damages, despite video showing her negligence.

These cases highlight the unpredictable nature of lawsuits. They also show the necessity for robust protective measures.

Key Strategies to Protect Your Wealth and Privacy

#1: Make Your Wealth Disappear

Greedy lawyers look for “deep pockets” to sue. By making your assets less visible or seemingly non-existent, you reduce the likelihood of being targeted.

• Keep a Low Profile. Avoid flaunting wealth. Drive a modest vehicle, live in a middle-class neighborhood, and keep luxury purchases discreet.
• Use Business Entities. Holding assets in the name of an LLC or trust makes them harder to find and less attractive to potential litigants. This includes financial accounts and real estate.

#2: Take Advantage of Built-In Protections

Federal and state laws offer certain protections against creditors. Understanding and utilizing these can help safeguard your essential assets.

• Liability Insurance. Purchase comprehensive liability insurance for your home, business, and vehicles. An umbrella policy with limits of $1 million or more can provide extra protection. But be aware that liability insurance does not cover intentional torts such as libel, slander, or harassment, nor does it protect against punitive damages or damages resulting from legal or regulatory violations. Given the numerous exclusions in liability insurance policies, it’s crucial to work with an experienced agent to ensure comprehensive coverage for all the risks you may encounter.
• Retirement Plans. Maximize contributions to employer-sponsored pensions, Social Security, and IRAs, as these are often shielded from creditors under federal bankruptcy law. Federal law also protects IRAs and other non-employer-sponsored retirement accounts up to a value of $1,512,350 (as of the 2022 limit, which is adjusted for inflation every three years. The next adjustment will occur on April 1, 2025). But you must declare bankruptcy to access these protections.

#3: Put Your Assets Out of Reach

Using legal structures like LLCs and trusts can help protect your wealth from being easily seized.

• LLCs and Trusts. These structures not only provide asset protection but also offer anonymity, reducing the risk of your assets being targeted in a lawsuit. By holding title to your business and investments in an LLC, you separate personal and business liabilities.
• Separate Business and Personal Assets. Ensure your business liabilities do not impact your personal assets by operating through a corporate entity. This means any business liabilities are satisfied out of business assets, not personal ones.

#4: Internationalize Your Assets

Setting up an international asset protection strategy can be highly effective.

• Overseas Holdings. Assets held in foreign jurisdictions are less accessible to US litigants and courts, making it more challenging for creditors to seize them. For instance, jurisdictions like Switzerland, Nevis, and the Cook Islands offer robust asset protection laws.
• Protective International Structures. Offshore trusts and insurance annuities often offer greater protection than their US counterparts, adding an extra layer of security. This strategy not only helps protect assets but also makes it difficult for plaintiffs to pursue claims.

Practical Steps to Avoid Legal Entanglements

#1: Avoid Making Promises You Can’t Keep

Broken promises can lead to lawsuits, even if they were made verbally.

• Example: Rudy, who promised to donate $100,000 to his church if his wife recovered from cancer but reneged after she did, faced potential legal action for his broken promise. In many cases, oral agreements are enforceable if they satisfy legal criteria such as offer and acceptance, lawful purpose, and free consent.

#2: Stay Out of Others’ Legal Problems

Entangling yourself in others’ legal issues can lead to unexpected liabilities.

• Cosigning Loans. Avoid cosigning loans, as a default by the borrower can leave you responsible for the debt and potentially facing legal action. The Federal Trade Commission notes that three out of four borrowers default on cosigned loans.

#3: Be Mindful of Your Statements and Actions

Your words and actions can lead to defamation lawsuits or other legal troubles.

• Online Conduct. Be cautious about what you post on social media. Singer Courtney Love faced multiple defamation lawsuits for her social media posts. She settled one case for $430,000, which involved defamatory statements made on Twitter about a fashion designer.

#4: Educate Your Children on Legal Consequences

Parents can be held liable for their children’s actions up to the age of 18.

• Vicarious Liability. Teach your children about the potential legal ramifications of their actions, such as bullying or damaging property, to avoid lawsuits. For example, in New Jersey, parents were sued for their children’s alleged bullying, and high school football players’ parents faced lawsuits for hazing rituals.

#5: Implement Robust Business Practices

Businesses are particularly vulnerable to frivolous lawsuits, but several measures can mitigate this risk.

• Airtight Contracts. Ensure all business agreements are clear and enforceable, reducing the risk of disputes. Contracts should include specific dates, figures, workflow, and consequences for unmet expectations.
• Detailed Records and Video Footage. Maintain comprehensive records and consider installing surveillance to protect against false claims. For example, a dash cam can provide evidence in the event of an accident, and meticulous records can protect against claims of contractual breaches.

#6: Regularly Assess Vulnerability

Conduct regular assessments of your personal and business liabilities to identify and address potential weaknesses.

• Professional Reviews. Engage with liability insurance brokers and legal professionals to evaluate and strengthen your defenses against lawsuits. Regularly review contracts, assess the safety of business premises, and ensure compliance with accessibility laws.

#7: Even Good Samaritans Get Sued in America

Despite your best efforts, you can still find yourself in legal trouble for helping others.

• Example: In 2013, Roy Ortiz, who was rescued from a flooded car, sued his rescuers for not responding quickly enough, seeking $500,000. This highlights the importance of going beyond basic precautions to protect your assets.

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