No one ever thinks they will be involved in an auto accident that’s serious enough to land them in court. But if you are found at fault, you can be sued for even minor injuries, especially if you don’t have the proper insurance to cover it. For example, a writer at NerdWallet tells the story of a person whose daughter was in an accident in her car which was still in her parent’s name. She caused a massive pileup with no serious injuries, but she was sued for damages by several people involved, in addition to a bystander who sued for “negligent infliction of emotional distress.” The bystander alone sued for $150,000.
This case seems a little crazy, but these types of things happen every day. And if you lose the case, you could be liable for whatever costs your insurance doesn’t cover. That’s why it’s crucial that you take some precautions to protect your assets to avoid losing everything in the event of a major accident such as this one.
What assets cannot be taken in a lawsuit?
Not everything you own is subject to seizure. For example, employer-paid retirement assets can’t be taken. These include SEP IRA, Simple IRA, 403b, or other non-profit retirement plans. Disability and other federal benefits are also protected and cannot be taken in a lawsuit, even if your wages end up being garnished.
Other asset protection varies from state to state. Homesteads, for instance, are protected from lawsuits in some cases, but not others, as are annuities and life insurance. It’s important to contact your auto accident lawyer in Mobile, AL to find out what assets are protected and what you can do to retain as much as possible.
Make sure you have enough insurance
If you are found to be at fault in an auto accident, you could be held responsible for any medical or property expenses your insurance doesn’t pay for the other party. Many people purchase insurance policies with the highest deductibles to save on premiums, but if you ever face a big lawsuit, you’ll wish you had better insurance. Speak to your insurance agent about your policy and make sure you have adequate coverage, especially if that policy covers other people, such as teenage children.
Other things to consider are the limitations of your policy you may not know about. For example, do you drive your car for work? This can include delivering pizza or driving for a service like Uber or Lyft. If you do, make sure your policy will cover you in the event of an accident when you are using it for this purpose. Otherwise, your insurance could refuse to pay, and you’ll be stuck with a lot more liability.
Purchase an umbrella policy
An umbrella policy could be the smartest investment you’ll ever make. Its sole purpose is to protect your assets from being taken in a lawsuit. But not only does it protect the assets you already have, it will also protect future assets, such as inheritance and future wages. This type of policy picks up where your other insurance stops paying. It will also help pay most legal expenses you incur in a lawsuit and, possibly, lost wages.
In addition, an umbrella policy covers your dependents in most cases as well. And the protection is not limited to car accidents. It will cover you for most types of personal lawsuits such as slander and defamation of character. It can also cover damage caused to neighbors’ property, such as if one of your trees falls onto their property and breaks their window. But, just like with any insurance, it does have some limits. For example, these policies won’t cover damage to your own property or vehicles since this is what your auto insurance is for. They also won’t cover things like restitution for drunken driving or other illegal activities you might get caught in.
Tie up your cash
With the click of a mouse, attorneys can locate every asset you have, even some you might have hidden. Unfortunately, this makes you a big target for potential lawsuits. This doesn’t mean that you won’t get sued after an auto accident if you don’t have many assets, but it does mean they might be hitting you up for more if you do. If you have high-value assets such as an expensive home, it’s a good idea to keep it mortgaged to tie up loose cash. And if the assets are already paid off or close to it, consider getting second mortgage loans or refinancing. Of course, you will need to read up on the homestead protection laws in your state to make sure this will help you. But if they do apply to you, you can tie up other cash in your homestead as well, by doing extra improvements to the property, such as adding a pool or remodeling the kitchen.
Incorporate your business
If you own your own business as a sole proprietor, you should speak to your tax planner about the possibility of setting it up as an entity immediately. In a sole proprietorship, your personal assets are exposed right along with your business assets, making them vulnerable to lawsuits. Setting up an entity such as a limited liability company (LLC) or an S corporation will separate your business from your personal assets. This offers your business more protection so you don’t risk losing it in the event of a lost car accident lawsuit. It is also wise to speak to your attorney about including some of your assets in your business, such as cars that you use for work more than home. This might, of course, depend upon which assets are more valuable and which would be riskier to lose. But if you have more protection under your business entity, it could offer some added asset protection.
Place some assets in your spouse’s name
Generally speaking, in most states, if you lose a lawsuit, creditors won’t be able to touch assets that are not in your name. Talk to your attorney about putting most of your valuable assets under one name or another, perhaps splitting them equally. It also might be a good idea to put the vehicles your children drive in their names. You can do this when you purchase them at the car dealership or you can transfer the titles later. Do use caution when splitting assets in unstable relationships because this could also make them inaccessible to you in the event of a divorce.
Plan ahead
Most importantly, plan ahead as much as possible. Once you’ve lost a lawsuit, it is too late to protect most of your assets. Get appraisals of the property you own and estimates for property you intend to own. For example, if you’re planning to build a house, talk to your home builders in Mobile, AL to get a good estimate of what your home will be worth when it’s finished. Be sure to also include any checking, savings, and retirement accounts. Then speak to an insurance agent to discuss the best possible protection for your family and your assets.