Broker Check

You’ve Been Sued! Now What?

January 04, 2024

                    KEY TAKEAWAYS:

  •  Asset protection strategies don’t always guarantee that
    your wealth is secure.
  •  Litigation problem-solvers and savvy attorneys can be
    instrumental in negotiating a solution if you are sued.
  • Asset protection plans should be revisited regularly—
    especially if you’re involved in a lawsuit that threatens
    your wealth

The U.S. has long been recognized as one of the most litigious nations in the world—if not
the most litigious. Here, anyone can sue anyone—no matter the validity of the case.


So it probably shouldn’t be a tremendous shock to you if someone, someday, sues you for
some real or perceived wrong you’ve done them. That’s especially true if you have substantial
wealth or own a business—two characteristics that can make you a high-value target for a
lawsuit.


Many of the Super Rich (those with a net worth of $500 million or more) are well-aware of the
litigation risks they potentially face, and they take steps to build walls around their assets. By
engaging in asset protection planning—a subspecialty of comprehensive wealth planning—
the Super Rich are legally shielding their assets from future lawsuits and creditors. It’s a
practice we can all learn from as we look to insulate our wealth.


That said, asset protection strategies don’t always guarantee that your wealth is secure. For
example, it’s essential that asset protection plans are in place before you are sued. Actions
taken to shield assets after a lawsuit has been filed are likely to be reversed by the courts. And
even when steps are taken to protect your wealth, you can still be sued. Worse, depending
on your level of wealth, the asset protection strategies you have implemented and other
circumstances, you could still end up losing a great deal in a lawsuit.

The upshot: Even if you employ legal and financial strategies to protect your wealth,
potentially devastating lawsuits sometimes may be unavoidable.
The good news is that when nasty legal action appears inevitable, you can take steps that
may possibly defuse the situation—and come out in good shape.

Litigation problem-solvers

It is very common for the Super Rich to reach out to professionals for help with lawsuits they
face, with the aim of avoiding litigation. Different types of professionals may get involved
depending on the nature of the issues.
If there are a number of professionals involved, there is likely to be a coordinator—known as
the litigation problem-solver. At the same time, clever lawyers are regularly a necessity, and
they usually take a leading role in defusing litigious situations.
One quality that makes these attorneys particularly effective is that they are adept
negotiators. Their ability to know when to push, when to give ground and how to frame things
is often crucial to defusing the confrontation.
The appropriate lawyers are also often extremely capable, experienced litigators. If they’re
not, they must have such expertise at their disposal—such as other partners within their
firms. Understanding the ins and outs of litigation is essential, as it shapes the negotiations.
And if the negotiations fail, being prepared for the inevitable trial is a necessity.
Litigation problem-solvers must also have an extensive network of critical powerful
relationships they can draw upon. For example, a lawyer might benefit from bringing in
leading private investigators or even turning to the police. Often it is about the people they
know and what IOUs they can call in. Consequently, lawyers and others who work in the same
community as the person being sued can have an advantage over professionals “from away.”

The litigation problem-solving process

Typically, a process is followed to deal with the impending litigation or threat of litigation.
This process involves a series of steps (see Exhibit 3). However, because of the nature of
litigation, there is often a lot of back-and-forth and adjustments—so the steps are far from
set in stone.
Usually, the process is triggered by a lawsuit being filed, or the realistic possibility of that
happening. Then, the nature and severity of the situation are assessed.

What is required is a very detailed analysis of the potential threat. The possible impacts on
your world are evaluated. This is the “internal assessment.” Most of the time, some form of
scenario analysis is employed. Here the “what if” questions are addressed. Some examples
include:
• “How might my family react to the charges?”


• “What would be the impact of the lawsuit on my business?”


• “What might happen during the legal discovery process?”


• “How will the lawsuit be seen by friends?”


• “What will the lawsuit do to my reputation in the community?”


It can be useful to detail all the implications that can come from the lawsuit, from going to
court to settling the matter privately. For many people, there is often a great deal of emotional
stress resulting from significant lawsuits. The stress not only impacts the person being sued
but also can have a ripple effect, causing complications with the family and the business.
Additionally, lawsuits can become quite distracting—getting in the way of effectively
managing a business.

The “external assessment” is a deep dive into the person or organization suing you. The
more that is known about these parties—from their motivations to the consequences for
them of winning or losing the case to their resources—the better. Investigators might even
be enlisted to help develop a better understanding of these parties.
With information and insights in hand, the next step is to attempt to work out a deal. The aim
is to negotiate a mutually acceptable solution that avoids going to court. This can be very
easy and straightforward—or it can prove to be amazingly difficult and complicated. The
bargaining process tends to be influenced most significantly by three issues:
1. The facts in the case


2. The “leverage” each side has


3. The egos of the different parties


While negotiating, the two sides are likely to be continually updating their assessments. The
negotiations per se will provide greater perspective. Meanwhile, each side can continue to
look internally and externally.
The result will be either success (defined as an agreement between the parties that avoids
litigation) or failure (which means going forward with a lawsuit). If a lawsuit proves unavoidable,
all the work to date should be beneficial in making the case in court.

Revisiting an asset protection plan

Asset protection planning can help dissuade some people from suing you, persuading them
to work out a settlement. It’s not about hiding wealth, but rather about using legal strategies
and financial products to shield assets from litigants. In fact, it can be intimidating to potential
litigants if they can see your wealth and the strong barriers you’ve built around it.
Even though many of the Super Rich incorporate asset protection planning into their wealth
planning, they tend to re-evaluate this aspect of their planning in the wake of having dealt
with actual or potential litigation. Typically, that means they want to:
• Find and correct clear weaknesses in their current planning
• Enhance existing safeguards
• Put more safeguards in place
The logic here is fairly simple. The experience of being sued or potentially being sued is such
that the Super Rich want to avoid the experience in the future as much as possible. Hence, they
seek to upgrade their existing asset protection plans. They’ll also often stress-test their plans
to see how existing plans would hold up under various litigation scenarios they might face.

Implications

When facing lawsuit issues, the Super Rich are usually referred to litigation problem-solvers.
These professionals (often lawyers) are regularly under the radar due to the nature of their
services. They tend to accept new clients only by referral.
That said, we are seeing litigation problem-solvers increasingly making themselves available
to people who may be considered affluent but who don’t have $500 million or more in net
worth. Often these professionals are best-known among elite wealth managers and similar
professionals with networks of experts with whom they work to provide a broad range of
planning services. For example, a business owner might not know the best lawyer to turn to
in order to address potential nasty litigation—but his or her wealth manager might.
If you or someone you know is dealing with issues around lawsuits and litigation—or if you’re
simply concerned about how well your assets are safeguarded from people who might want
to take them from you—contact your financial professional to discuss your concerns.


This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.