How to Protect Your Assets from Legal Disputes
While not hugely common, a big legal dispute can be one of the most damaging events to affect your assets.
Whether it’s divorce proceedings or a suit against your company, it’s good to take appropriate steps to limit any potential impact on you.
Avoiding Issues
The best ways to protect your assets are the least glamorous ones:
- Avoid disputes
- Keep records ready for them
- Have appropriate insurance
If you’re running a business, then employing appropriately skilled staff with clear procedures and up-to-date training will reduce the risk of a legal dispute. This includes professional financial and legal services.
Well kept records that meet appropriate legal standards will reduce the risk of disputes and give you evidence to protect yourself.
Make sure agreements are covered by well-written legal contracts.
Use email to keep written records of conversations with customers and suppliers, even if that means emailing notes of a verbal discussion you’ve had.
If you work in a profession with a high likelihood of legal claims, such as a doctor or dentist, then make sure that you have professional insurance to cover you in the case of negligence proceedings.
Business Structure
If you’re running a business, then having an appropriate corporate structure will help protect your personal assets from business cases and vice versa.
In the UK, the most common form of this is a limited liability partnership (LLP).
This separates the business from the individual and means that members of the partnership aren’t responsible for each other’s failures.
A limited partnership, while less common, can be useful if you won’t be actively managing the business.
If you’re willing to go to the extra expense involved, a limited liability company (LLC) can provide a more flexible offshore alternative.
These structures don’t provide a bullet-proof solution.
Courts may break through the barrier between the individual and the business if there’s a special relationship between them, in cases of fraud, or certain other circumstances. But they severely reduce your risk from business cases.
Living Arrangements
Divorce can be as much of a threat to individual wealth as a professional legal case.
If you want to protect your assets from all angles, then it’s worth considering your living arrangements.
If you’re cohabiting and don’t have children, then legal complications are relatively limited.
Assets belong to whoever’s name they are in, or whoever bought them.
By each keeping legal control of what you bring in, you can protect your assets. If you want extra protection, you could create a cohabitation agreement.
In divorce proceedings, things become more complicated. The surest way to protect your assets is not to get into a marriage that you can’t make last.
The second best is a prenuptial agreement, with legal representation involved to ensure the agreement protects you.
If the worst happens and your relationship falls apart, then stay in the house if possible, as this helps protect your claim.
Things are different if you’re at risk of abuse, and if this is the case, you should immediately talk to your solicitors about moving out.
Once you do move, avoid moving in with another romantic partner until the divorce is settled.
Again, this will help to demonstrate your needs and rights in the eyes of the court.
Wealth Segregation
Regardless of the source of legal troubles, wealth segregation can help to protect your assets.
His involves separating some of the wealth from your estate, placing it in a position where you don’t legally own it, whether by putting it into a company or a trust.
This can be used to argue that the wealth is no longer yours.
To maintain this separation, it’s essential to maintain the distinction.
If you benefit from a trust or are occupying a building officially owned by the company, then the courts may regard this division as a sham.
Establishing these arrangements offshore helps. Firstly, courts and legal opponents may be less likely to notice a connection to you.
Secondly, legal entities in other countries may look less favourably on the claims of creditors, and so protect that wealth.
First Response
If you do face a dispute, then your first response will be critical.
Provide a reasonable response and see if there’s some mutually acceptable way to settle the issue.
If you can prevent it even reaching the legal stage, then you may save yourself a lot of risk and costs.
Once things become formally legal, consult your legal representatives, follow their advice, and follow the letter of the law.
By cooperating with your lawyers and with the courts, you put yourself in a stronger position to face the case.
If you’re in the wrong, accept this and settle quickly before the costs mount.
If things aren’t clear cut, then offer a compromise, following the guidance of your lawyers. The best way to protect your assets from a legal dispute is not to get into one.
But with the right structures in place, you can feel secure and protect much of your wealth when things go wrong.
Paul Connolly
Paul Connolly has been a journalist for more than 20 years, as a reporter and editor for Argus Media, Reuters, The Times, Associated Newspapers and The Guardian. He has covered Islamic Finance for Reuters in the 1990s. Paul has since helped launch three newspapers, as well as reported from Tokyo, Los Angeles and Stockholm.
