How to Protect Your Home from a Lawsuit

Protecting your assets is crucial today, especially in an environment where modern problems and frivolous lawsuits are common. In many cases, an individual’s home and real estate investment properties are a large percentage of one’s overall investment portfolio and wealth configuration. Protecting real estate assets requires professional solutions and involves safeguarding holdings from potential creditors, plaintiffs, or judgment creditors.  

Implementing an asset protection plan is a legal way to ensure that creditors or claimants don’t gain access to your property holdings for settlements, debt payments, or lawsuits. There are many options to protect real estate assets and varying structures to the type of protection needed and the location of the assets. Here are a few strategies to consider protecting not only your property but your hard-earned wealth. 

1. Trusts  

One option is to place your home in a trust, which can provide privacy and protect real estate assets. Since the property is held in the name of a trust, the owner has more robust personal protection. If multiple owners are listed in the trust, the property is protected if one of the owners should have a judgment – since the creditor or judgment holder cannot go after trust assets. 

Inherited assets can also be protected by placing property in a protection trust. Passing your property on to your loved ones while defending it from future creditors is essential. Self-settled trusts serve as another option to protect your properties, and specific state statutes also provide additional security.  

2. LLC 

Another option is to hold property under an LLC, which can help shield business assets from judgments and other claims. Forming an individual LLC for each property limits lawsuits to assets held in that LLC. This protects an individual’s other businesses, personal investments, or additional real estate holdings. 

3. Financial products and exemptions  

The right insurance policies, such as liability coverage or umbrella policies, can help protect real estate holdings. Annuities (homestead annuities) and life insurance can also offer protection for your real estate assets. Homestead exemptions can guard your primary residence from harm, and numerous retirement plans may also be protected under federal laws.  

4. Equity Stripping 

Equity stripping is one of the oldest real estate asset protection strategies around, but homeowners must get familiar with the potential downside. Essentially, equity stripping entails encumbering a property with debt to such an extent that creditors can acquire little or no equity. In this structure, the property owner retains control over the cash flow and use of the asset while making the property unattractive to those attempting any legal judgment. Although this is a seemingly straightforward approach, specific requirements must be met to ensure its effectiveness.