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What Is Lawsuit Protection?

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  • Written By: Christopher John
  • Edited By: Lauren Fritsky
  • Last Modified Date: 13 September 2014
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Lawsuit protection refers to asset protection techniques intended to minimize financial losses due to litigation. Most lawsuits seek money damages from a defendant, and damage awards are often substantial. Asset protection techniques include setting up trusts, creating business entities, and setting up retirement plans. Lawyers in this field develop lawsuit protection techniques based on the circumstances of their clients. An asset protection technique may not always work to shield assets from a court.

A lawsuit often means paying money to lawyers, going to court for years, and facing the possibility of losing in court. A loss could mean financial ruin for many defendants. Successful defending against a lawsuit could still mean significant financial losses for a defendant because of litigation expenses. In response, asset protection lawyers have emerged with promises of special lawsuit protection plans and techniques.

Typical lawsuit protection techniques include setting up a trust. Laws in many jurisdictions recognize a trust as a separate legal entity. An asset protection lawyer may help a wealthy person transfer the ownership of his assets to a trust. In theory, the transfer of the assets to the trust means that the wealthy person no longer owns the assets. If a defendant in a lawsuit does not own an asset, then a judge cannot take away the asset to satisfy a judgment.

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The problem, however, is that there are several types of trust instruments and they do not all not work as a lawsuit protection technique. A judge also looks at various factors to decide whether a trust should operate to shield assets. For instance, if a defendant in a lawsuit creates a trust after a lawsuit is filed against him, then it creates the appearance that the defendant is attempting to commit fraud or an injustice against a plaintiff. As a result, a judge is likely to disregard the trust, which means that the judge will enter an order forcing the trust to release the assets. 

Asset protection lawyers encourage clients to develop lawsuit protection plans before the threat of litigation arises. This allows a lawyer to argue that his client did not create the trust to cheat a defendant or commit fraud. A court is then likely to honor the trust instrument. 

A lawyer develops lawsuit protection plans based on the circumstances of a client. For example, if a client lacks a retirement plan, a lawyer may encourage his client to begin investing in one. Laws protect retirement plans from court judgments. This means a judge cannot reach the proceeds of a retirement plan to satisfy a judgment.  

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