“The use of a lawsuit to obtain legal relief may be the only effective remedy in many instances. In dealing with some people, they will simply ignore your requests until the law is involved and they are legally forced to change their behaviors and/or actions.”
J.J. Childers
When it comes to the topic of asset protection, most people view it as a way to effectively protect themselves, their business(es), and their assets from the possibly devastating effects of a lawsuit. The presumption is that lawsuits are bad and have the potential to destroy you, your business(es), and your financial well-being. While this can certainly be true, there is a lot more to consider when addressing the overall legal process surrounding lawsuits, litigation.
Like many things in life, there is both good and bad that can accompany lawsuits. Just as there is good fat and bad fat, good cholesterol and bad cholesterol, and good debt and bad debt, there are good lawsuits and bad ones. The use of a lawsuit to obtain legal relief may be the only effective remedy in many instances. In dealing with some people, they will simply ignore your requests until the law is involved and they are legally forced to change their behaviors and/or actions. Whether it’s to gain this type of legal relief or just to get someone’s attention and let them know that you are serious, in certain circumstances, the use of litigation can actually be very effective. It’s the abuse of the process that causes people to dislike it so much. What we will be focusing on in this article is how to deal with it as effectively and efficiently as possible.
If you’ve been reading Traces magazine for the past several months, hopefully you’ve noticed that I’ve been writing a series of articles on the overall topic of asset protection. Through these articles, I’ve taken a different approach than what you’ve previously seen when it comes to protecting assets. Rather than providing information on the traditional use of legal entities and particular protection strategies, I’ve focused more on how to utilize different approaches to managing disputes before they ever arise and then how to mitigate the damage in the event that they do arise.
Each month, I’ve provided an overview on the following approaches to effectively managing and mitigating conflict:
- Communication
- Documentation
- Negotiation
- Mediation
- Arbitration
- Litigation
This month, the focus is on effectively dealing with litigation.
An important issue that I want to address is what I mean by “effectively dealing with litigation.” As mentioned above, litigation can actually be a very effective offensive tool for a business owner or individual to use when they are being taken advantage of or treated unfairly or illegally. Sometimes, it is the only way to get the other party to take action or to quit certain actions that are causing damages. In these instances, the court system and the use of lawsuits are incredibly valuable and having a good attorney on your side is an incredible asset.
The problem with lawsuits and the process of litigation is when they are abused. Unfortunately, this happens all too often. When frivolous lawsuits are filed, the process transforms from one that can be positive to more of a form of legalized extortion. It can be extraordinarily time-consuming and expensive. It’s important to keep in mind that the costs of litigation are not just financial in nature. The stress of dealing with a lawsuit and the uncertainty surrounding it can take a significant emotional toll on the parties as well. This is part of why I’m such a staunch advocate of trying to resolve disputes with methods other than litigation.
When it comes to asset protection with regard to litigation, this is where the traditional approach comes into play. To properly protect one’s self, one’s business(es), and one’s assets from the liability that may result from a lawsuit, it is essential that a legal entity that provides limited liability protection be put into place. Without this type of protection, it’s just a matter of time until a dispute arises that leads to a lawsuit and potential liability that could cost you everything.
For those who operate a business, one of the most important steps that they could possibly take is to establish a legal entity through which to operate it. There are many options for how to do this and it’s important to choose the one which is best suited for the particular person and the particular business. Some of the primary considerations are:
- What type of liability is involved in your business?
- How much income is being generated in your business?
- What is the nature of the income (i.e., is it active/ earned or is it passive/unearned)?
- What is your ultimate plan for the business? Is this for your long-term operation or are you building something to someday sell?
Depending upon the answer to these and other questions, some entity options will provide better treatment than will others. The reality, however, is that there is no one entity option that will solve all of your problems or cure all of your ills. The best approach is to go through a process of identifying exactly what it is that you are trying to accomplish and to have a plan de- signed for how you are going to do it. To help you with these determinations, it’s important to consult and work with a qualified professional.
When I work with clients, the primary thing that I like to start with is what I refer to as a “wealth protection blueprint.” This is essentially a step-by-step plan that I design for them after I’ve taken the time to speak with them, go through some information with them about what they want and need to accomplish with their plan, and to identify how they need to be structured to achieve their asset protection, estate planning, and tax re- duction goals. All of these things are important and all of them must be addressed in a properly structured plan.
The key distinction in my work with clients is that I don’t simply tell them WHAT they need to do. I work to provide them with exactly what they need so that they also understand WHY they need to do the things that I advise them to do and HOW they can make it happen. I believe, and my clients have affirmed this belief in their comments to me, that this separates me from a lot of other professionals out there when it comes to helping them to accomplish their wealth protection objectives. My whole approach is to incorporate the old adage that you can give a person a fish and feed them for a day or teach them to fish and feed them for a lifetime. While they may not want to be legal scholars, my clients recognize the importance of understanding their particular plan, why they have it, and how it works. Protecting assets involves a lot of different approaches. As we’ve covered through the last several months in these articles, there’s more to it than simply protecting against lawsuits. Most disputes don’t start out as legal battles but grow to that point when not properly addressed. That’s why I help people to learn and implement a wide variety of important strategies for covering their as- sets. To learn more, visit my website at www.jjchilders.com.
