Question: Are retirement monies protected from lawsuits?
By Ric Edelman
Question: Are retirement monies protected, say, if you should get into a lawsuit or something? I was thinking of how O.J. Simpson’s pension is protected in Florida; in Maryland, is that protected?
Ric: It depends on the state in which you live. Maryland, for example, does fully protect retirement assets, while Virginia does not.
If you are worried about liability, you can consider the following ideas:
- Have ample automobile insurance (car accidents are the #1 reason people get sued), and buy an umbrella liability insurance policy for the greater of $1 million or three to five times the value of your home. People sue only for what they can get, so having proper coverage will let you pay plaintiffs without losing your assets.
- If you are in an occupation that places you at a high risk of being sued, such as the medical field, obtain “errors and omissions” insurance coverage. If you serve on a corporate board, even a nonprofit board, make sure the organization maintains a Directors and Officers Liability policy.
- If you live in a homestead state, such as Florida, buy a really expensive house for cash (note that this is the only time I advocate paying off a mortgage! — and I’m saying it somewhat facetiously) and move into it (because the home must be your primary residence). Courts can require you to liquidate investments, but courts in homestead states cannot force you to sell your home, regardless of its value.
- Shift assets to your spouse. If you don’t have any assets in your name, you become “judgment proof” — meaning plaintiffs can’t collect money from you because you (legally) don’t have any money. If you don’t have a spouse, get one — and make sure you trust him or her, or … well, you know. Note that this strategy, like the one that follows, doesn’t work if you have reason to believe that you are about to be sued.
- Move assets to an offshore trust. Many nations refuse to recognize civil judgments rendered by U.S. courts, forcing plaintiffs to sue you in local courts. Some nations require that plaintiffs be present, and it’s unlikely that they’ll be willing to travel to, say, New Zealand for protracted court fights. This helps you become judgment-proof. Downside: Offshore trusts are expensive to create and maintain and, if you’re sued, you can’t ever bring those assets back into the U.S. (for if you do, the money will be seized by the court that had awarded damages to the plaintiff). You’ll literally have to fly overseas to visit your money. And keep in mind that offshore trusts do not let you avoid U.S. income taxes. Note: Judges have been known to incarcerate defendants until they bring their assets back to the U.S., thwarting this strategy.
- Convert all your assets to income producing annuities. Some jurisdictions don’t let creditors take money that’s in annuities, although some do allow the income paid by annuities to be attached.
All these ideas should be reviewed with an attorney skilled in this area of the law.