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What a Litigation Nightmare Looks Like (And How to Stay Out of One)

Scott Smith
4 min read
What a Litigation Nightmare Looks Like (And How to Stay Out of One)

This article does not constitute legal advice. We recommend you seek the counsel of an attorney familiar with your specific situation and market to ensure you make the best decisions within your real estate business.

What does a litigation nightmare mean, and how does the fight go down? While some of you might wish it were just attorneys strangling each other, unfortunately, it’s a situation much more likely to impact you as an investor. It means having to risk thousands and thousands of dollars with the mere hope of being able to get something out of the other party. This is the nightmare that causes the attorneys looking to sue you to lose sleep at night.

Think about all the commercials you see on TV for personal injury law firms. These guys advertise to get clients for these specific type of lawsuit because they know they can win them.

Now ask yourself this: As an investor and as a business person, do you go to Las Vegas rolling dice hoping that you’ll recover (money, assets, etc.)?

Probably not, and neither will an attorney.

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Related: Fires, Floods & Earthquakes: How to Protect Your Real Estate from Mother Nature

Litigation: Making Your Suit as Ugly as a Used Car Salesman’s

Suing people is usually a gamble for attorneys because they tend to get paid from the settlement. However, in order to get a settlement, they have to win.

No attorney is going to try and sue you if they think there’s not a good chance of winning. They can’t make money if they don’t win. Attorneys are in the business of only taking cases that are guaranteed wins. They won’t take a case they can’t win and they won’t dare try to sue you—at least not when a qualified asset protection attorney has your back. You wouldn’t believe how powerful asset protection is. But more on that later.

Beyond just winning, let’s talk WHY careful planning and the implementation of an effective asset protective plan uses the incentives of the business of lawsuits (read: the reasons people get tied up in litigation nightmares) against those who wish to sue you.

Asset Protection: How Costly Litigation Actually Helps Protect You

Attorneys don’t like to lose, and when you gamble, there’s always a chance you might lose. What I do for a living is make it a gamble for attorneys to come after your assets.

I’m not that special. It’s really more just a law of legal nature: Most attorneys aren’t willing to put in the time and effort to sue you when they know there’s plenty of other people they could easily win lawsuits against.

Anyone can make their assets untouchable and intimidating to pursue in court/litigation. You could own a company generating over six figures, or even millions, in revenue yearly and nobody would know except you‚—and your lawyer, of course, but we kind of took an oath to keep our mouths shut.

But let’s say someone were to win a lawsuit against you. It’s unlikely, but it could happen. What an effective asset protection plan does is limit their ability to come after your assets down to next to nothing. The axiom about getting blood from a stone mentioned above is absolutely true in this scenario. If the plaintiff wins, they’re not going to get much—and they’re only going to be able to touch assets directly related to the suit. That means everything you own personally and all of your other investments are absolutely safe.

Asset protection involves the use of LLCs, series LLCs, anonymous trusts, and several other legal structures. These legal structures are proven to work, legal, and cost-effective. Quality asset protection depends not just on the legal structures or entities, but also upon your anonymity being rock solid. Through a simple, but not obvious, series of maneuvers involving a variety of legal tools, you can own a lot of property without looking like you do. Protecting your anonymity starts from the second you form your entity.

Related: Tips & Tricks From an Attorney: Here’s How I’d Protect My Real Estate Assets

It’s Simple, But It’s Not Free. Here’s Why It’s Still Worth It.

There are upfront costs, and they aren’t always cheap. Sometimes, setting up a series LLC (one of our favorite asset protection tools for investors) can cost $1,000. But that $1,000 gets you an entity that saves you in terms of taxes, isolates your assets, protects your anonymity, and allows you to grow your business into a straight-up empire at no additional costs.

We’re using this example because it’s one of our all-time favorite tools for asset protection. But it’s one of many: anonymous trusts, land trusts, many other types of entities, and many more details far too academic to trot out here will work together to form a cast iron safe around everything you own. The other result is that you look like you have nothing to come after personally. See above: No attorney will come for you if you don’t have any cash-money to line their pockets.

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Bottom Line: Spend Now or Pay Later

A relatively small investment could keep you from losing everything—and, done correctly, keep you out of the stressful situation of being sued in the first place.

And now I’m tossing the ball to you. Have you ever been caught up in a litigation nightmare? What about narrowly avoiding one? Do you have an asset protection plan already? If not, why not? If so, has it helped you? I’m always interested in hearing about the experiences BiggerPockets readers have with these matters. And please don’t hesitate to leave any questions you may have for me in the comments section below. Thanks for reading, and I hope this helps you stay out of court and learn how to protect your assets more effectively.

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What have your experiences been?

Comment below!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.