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How to Protect Your Assets from Lawsuits and Creditors

February 19, 2025 - Blog posts are not legal advice, they are for informative purposes only. If you want legal advice, please schedule a consultation through the Contact page here. 

In today’s litigious world, protecting your hard-earned assets from lawsuits and creditors is a crucial part of financial and estate planning. Whether you are a business owner, professional, or simply want to safeguard your wealth for future generations, there are legal strategies you can use to shield your assets. Here’s how you can protect yourself and your estate.

1. Establish a Trust

Certain types of trusts can help protect your assets from creditors. When a trust has a spendthrift provision it is generally inaccessible to beneficiaries' creditors. However, if the trust is revocable it can still be accessed by the settlor's creditors. If the trust is both irrevocable and contains a spendthrift provision, then the assets inside are protected from settlor and beneficiary creditors subject to equitable veil-piercing doctrines.

2. Form a Limited Liability Company (LLC) or Family Limited Partnership (FLP)

Business entities such as LLCs and FLPs can provide liability protection for personal and business assets by separating personal wealth from business operations. Business owners should ensure their personal assets are kept separate from business liabilities. Using LLCs, corporations, or other legal entities can help protect personal wealth from business-related lawsuits.

3. Utilize Homestead Protection

Texas provides strong homestead protections, meaning your primary residence is generally protected from creditors under state law. This can be a valuable safeguard for homeowners.

4. Maximize Retirement Accounts

Qualified retirement accounts like IRAs and 401(k)s often have federal and state protections against creditors. Maximizing contributions to these accounts can help shield assets from lawsuits.

5. Maintain Adequate Insurance Coverage

• Liability Insurance – Homeowners, auto, and business liability insurance provide critical financial protection in case of lawsuits.

• Umbrella Insurance – This extends liability coverage beyond standard policies and can help cover large claims that exceed primary insurance limits.

• Malpractice or Professional Liability Insurance – Essential for professionals such as doctors, lawyers, and business owners who face industry-specific risks.

6. Consider Asset Protection Planning Before Problems Arise

Asset protection strategies must be implemented before legal issues arise. Transferring assets after a lawsuit is filed or a creditor claim is made may be considered fraudulent and legally reversed.

7. Stay Informed About State and Federal Laws

Asset protection laws vary by state and change over time. Consulting with an experienced estate planning attorney ensures you are using the most effective legal strategies available. In Texas, there have been recent Rule Against Perpetuities changes that make Dynasty Trusts more attractive. However, these law changes are still subject to lawsuits and federal legislative action that could render them either unconstitutional or preempted by federal law. The point is this: law is always evolving and changing, so constant communication with an attorney about your options is wise.

Conclusion

Taking proactive steps to protect your assets can provide peace of mind and financial security for you and your family. Trusts, business structures, insurance, and legal planning are essential tools for safeguarding wealth against lawsuits and creditors.

If you want to develop a personalized asset protection strategy, contact Faithful Stewardship today to ensure your financial legacy remains secure.