What do you have to lose in court? The original payment that should have been paid? A small sum, seeing as your lawsuit wasn’t actually about money?
Unfortunately, the cost of a lawsuit is often way more expensive than you think, and if you fail to pay, your assets can be taken away from you.
Let's look at an example so you know just how much more you could payout than you may have originally expected. In 2020 a property owner did not pay a roofer their final payment.
This payment was $3,500. The payment was part of the contract and so the roofer was in their rights to file a lien. The roofer won this lawsuit and the homeowner had to pay the original £3,500.
Nat Nason, the Florida attorney for this case, explains that this “didn’t satisfy the roofer’s claim for attorneys’ fees and costs”.
Because the roofer had to pay money towards a lawsuit to get the money that was rightfully theirs the “roofer was allowed to pursue his lien pending payment of those fees and costs”.
This is not a one off case. The “winner” of the lawsuit often asks the “loser” to pay for the attorney fees because, as proven by the court, the “winner” was not a fault and should not have been put into this financial disadvantage.
In our example situation, the roofer was denied their original payment and then had to pay double the amount in attorney fees just to get the original payment back.
The judgment then agreed that the homeowner should pay for the attorney fees, leaving the homeowner with a charge of £35,000 for refusing to pay £3,500.
The court can help itself to the homeowner’s money if they cannot pay this fee. This encompasses the homeowner’s assets, including the home which started the legal battle in the first place.
What Is An Asset?
This example was not included to scare you, but to educate you on what could happen. If you have to pay a fine that you do not have the money for, then the court can find a payment in your assets.
Before you can protect your assets, you need to know what an asset is.
An asset is anything of value that can be converted into cash, like a car, a house, a games console, etc. An asset can also be a resource of value, like a company, a crop, or land that brings in more money than it is worth (think of gigs or holiday homes).
Essentially, an asset is anything that contains an economic value or a future benefit. It is either worth money now or it is worth money later.
What Assets Can Be Seized In a Lawsuit?
So, what assets of yours could be taken from you in a lost lawsuit? Remember that seizing an asset is only considered if the defendant cannot pay the fee. If you already have the money, then your assets won't be taken.
However, if you cannot pay the whole amount then anything that is considered an asset can be seized. The most likely asset to be taken is your life savings. The only savings that are exempt are retirement accounts.
Savings accounts are essentially money on hand, they are just tied up in a bank. Because of this, savings accounts are usually the first asset to be snapped up.
When it comes to other assets, the courts can take anything that isn’t exempt. That could be your car, your home, your jewelry, your computer, your phone. The list goes on.
Instead of telling you what can be seized, it would be easier to explain what cannot be.
In all states, there are certain assets that cannot be seized. These assets are considered exempt or “free from seizure”. This can be clothing, basic house furnishings, or anything that doesn’t have a lot of value.
Your home could also be considered exempt if it isn’t worth a lot of money, or if you own a home with another person and the home has a “tenants of entirety” contract.
Tenants of the entirety is a legal term which means that both people have an undivided interest in the property. If the second person is not involved in the lawsuit, then the courts cannot take their home.
The collection of assets is judged by their value and how they can be converted to cash. If your home is worth $100,000 and your debt is worth $10,000, then the creditors would be more likely to search for something closer to that amount, whether that was one item or multiple.
How can I protect my Assets?
There are a couple of ways to protect your assets, and you should consider these options before a court case appears.
One of these options is an Asset Protection Trust. Asset Protection Trusts, also known as APT, are often used by wealthy individuals. They use offshore trusts creating a barrier between the asset and the collector.
The trusts are irrevocable, meaning that the terms cannot be modified, amended, or terminated without the grantor’s permission. This means that someone else cannot change the terms without your permission, creating an issue for most collectors.
The best way to protect your asset depends on what your assets are, and how they can be transferred to somewhere else or someone else.
We would suggest that you hire a lawyer to figure out what is best for you, what is legal, and what gives you the best chance of keeping your assets if a lawsuit ever comes your way.