In Part I and Part II of this post, I described how economic downturns always lead to people to sue each other out of anger and desperation. I also described some likely targets for litigation.
How do you protect yourself? Consider the following "lifeboat strategies:"
- Review your business and personal liability insurance. Don't stop at the minimum limits, either. If you can purchase an "umbrella" policy with limits of US$1 million or more, do so.
- Separate your business and personal assets. Operate any business you own through an entity such as a corporation or limited liability company (LLC). This helps insure that business liabilities are satisfied out of business assets—not your personal assets.
- Get wealth out of your own name. Don't hold financial accounts and real estate in your name. Hold them in the name of an entity—a trust, limited liability company, limited partnership, etc. This frustrates the efforts of litigants looking for property that's easy to seize.
- If you own a business open to the public, make sure it complies with state as well as federal laws guaranteeing accessibility by disabled patrons. Dozens of companies hold themselves out as "accessibility consultants." When you hire one to evaluate your business, one that's certified in your state provides some assurance that it's qualified.
- If you own unoccupied real estate, maintain it so that it's not considered abandoned property. This means periodically cutting the grass, cleaning the pool, fixing broken windows, removing graffiti, etc.
- Carefully review any employee or customer agreements that require binding arbitration. If Congress enacts the Arbitration Fairness Act that I discussed in Part II, you'll need to redraft all such agreements.
- If you're an employer facing a union organizing campaign, tread very carefully—especially if you accept business from the U.S. government. Don't assume you can take any action to discourage unionization without professional representation from an attorney experienced in labor relations.
- Use protective international structures. Laws in some countries are much more protective of wealth than the United States. Offshore trusts, insurance annuities, private annuities, and life insurance contracts often offer greater asset protection than comparable arrangements in the USA. And when all your wealth isn't in a single country, it's much more difficult for anyone to track it—or seize it.
No one is immune from the lawsuit tsunami. But with these precautions in place, you'll be in a much stronger position from attacks by trial lawyers against your business and yourself.
Copyright © 2009 by Mark Nestmann
(An earlier version of this post was published by The Sovereign Society.)
