How to Fortify Your Wealth Against Legal & Financial Risks: A Guide to Asset Protection

What would you do if you were sued by a contractor who was injured while working in your home? Or if a business client or patient sued you for professional malpractice? 

Would you be ready to defend yourself? 

A lawsuit, divorce, or creditor claim could jeopardize years of financial success in an instant — even if the case has no merit. 

Legal action isn’t the only concern: nearly 25% of affluent individuals cite theft and accidents as having a “high” or “very high” impact on their wealth.¹ Additionally, about 33% report that cybercrime has negatively affected their financial standing.

That’s why asset protection is just as important as asset accumulation. While you can’t prevent every lawsuit or financial threat, you can put legal and financial safeguards in place to protect what you’ve built.

In this guide, we’ll break down the biggest financial threats to your wealth — and strategies to defend against them. From legal structures and trusts to risk management and insurance, we’ll show you how to build a comprehensive asset protection plan that safeguards your wealth for generations.

What Is Asset Protection?

Asset protection is designed to safeguard your wealth from a wide range of potential threats, including:

• Litigation and lawsuits: Bank robber Willie Sutton supposedly said he targeted banks because “that’s where the money is.” In the same vein, affluent families and individuals can be prime targets for lawsuits, regardless of whether the suits have merit or not. These lawsuits may stem from business disagreements, professional liability claims, personal injury, or other disputes.
• Creditors’ claims: Creditors such as banks and credit card companies may make credit claims for payment of outstanding debts and liabilities, either during bankruptcy proceedings or probate proceedings against the estate of a decedent.
• Professional malpractice: Doctors, lawyers, and other professionals are obliged to carry out their duties with the highest standard of care and must follow rules and standards set by organizations, such as the American Medical Association (AMA) and the American Bar Association (ABA). Patients or clients who believe a professional has failed in this duty may file malpractice lawsuits to seek legal recourse — which occurs more often than you’d think. For instance, a total of 10,217 medical malpractice claims were reported in the National Practitioner Data Bank in 2024.²
• Divorce settlements: Even amicable divorces can involve litigation that leads to significant wealth division, diminishing the financial standing of both parties. Standard automatic awards for child support and alimony apply in many divorce cases, unlike the dramatic courtroom scenes often depicted on television and in movies.
• Business failure: Statistics indicate that businesses have about a 50-50 chance of surviving for more than five years and less than 35% chance of surviving more than 10 years.³ Depending on how the entity is structured, entrepreneurs could be personally liable for any debts or liabilities of a failed business.
• Economic volatility and uncertainty: High volatility in the financial markets, caused by inflation or global unrest, can lead to large losses in financial portfolios if they aren’t structured to withstand economic shocks. Portfolio diversification can help protect investment portfolios from volatility and uncertainty.
• Taxes: The more money you make, the more the government will want to take. According to one study, wealthy Americans pay more than 45% of their annual income in federal, state, and local taxes. This rises to 60% of annual income for the ultra-wealthy who may also pay foreign taxes, which makes tax planning especially critical for these families and individuals.⁴

Asset Protection Strategies

The first step in asset protection is to calculate your potential loss exposure. In other words, how much do you own that could be claimed and seized in a lawsuit or settlement? 

Assets at risk might include your primary residence, secondary or vacation residences, automobiles, yachts, private aircraft, art and collectibles, and investment securities. Based on the value of your assets, you can devise strategies to reduce your potential loss exposure. 

Most of these strategies fall into three main categories: 

1. Insurance: This is the first level of asset preservation. Several different types of insurance (see below) can protect your assets from personal liability resulting from adverse legal judgments, death or disability, property damage, business losses, and catastrophic medical expenses.
   
2. Statutory asset protection: Certain types of property and assets are exempted by federal or state law from creditor liens and thus are automatically protected by statutory guidelines. These usually include qualified retirement accounts, 529 college savings accounts, life insurance benefits, and home equity (or “homestead”). Note that protection levels and exemption amounts vary by state and may not cover an asset’s total value.
3. Asset titling: How assets are titled (i.e., specifying the legal owner of an asset) plays an important role in creditor protection. So, it might make sense in some situations to transfer property ownership to a spouse who has less liability risk. For example, if you are an attorney, business owner, or surgeon, you could retain ownership of assets with statutory protection and move unprotected assets to your spouse. The details of asset division should be agreed upon in writing to protect both spouses in the event of divorce.

For married couples, tenancy by the entirety (TBE), which is a form of shared property ownership, offers greater asset protection than joint tenants with right of survivorship (JTWROS), a legal structure in which two or more parties share ownership of an asset. With TBE, if one spouse is sued or files for bankruptcy, the TBE-held property cannot be attached (i.e., seized) by creditors. Note that TBE is not recognized in all states.

Asset Protection Tools

Here are a few of the most effective tools for protecting assets from creditor claims and adverse legal judgments:

Personal Liability Insurance

This type of insurance helps protect assets if you are found to be at fault in a personal injury or liability lawsuit. Most homeowners and automobile policies include a minimum level of liability coverage, typically ranging from $10,000 to $25,000. High-net-worth individuals and families should consider additional coverage to boost protection.

You can attain more coverage with a personal umbrella liability policy, which goes above the standard limits of your homeowners or car insurance. Umbrella coverage amounts typically start at $1 million and increase in $1 million increments. 

For example, let’s say you have $500,000 in auto liability coverage and a $5 million umbrella policy. If you were found liable in a car accident for serious injuries suffered by passengers in another vehicle, your umbrella policy would provide $5 million in coverage on top of your $500,000 in auto liability for total liability coverage of $5.5 million. 

Other types of specialized personal liability insurance include:

• Professional malpractice 
• Directors and officers (D&O) 
• Employment practices liability
• Identity fraud protection
• Kidnapping and ransom

Asset Protection Trusts

Certain states and foreign jurisdictions allow for the creation of irrevocable asset protection trusts, which help place assets outside the reach of creditors while allowing the grantor (i.e., you or a family member) to retain limited access. That can include the right to receive trust income and principal distributions as well as some oversight over how trust assets are invested.

Because these trusts are complex legal structures, they typically require an institutional trustee to administer them properly. Otherwise, improper structuring can lead to unintended consequences, such as: 

• Overlooking the statute of limitations on transfers — assets are only protected after this “look-back” period expires.
• Frequent withdrawals for personal expenses could cause a court to deem it an extension of your personal finances and “pierce the veil.”
• Transferring too many assets into the trust may render you insolvent, potentially invalidating trust protections.

LLCs and FLPs

Limited liability companies (LLCs) are business structures that separate personal assets from business liabilities. They establish an “arm’s length” between the business owner and the business entity, thus helping protect personal assets from lawsuits related to the business. 

Keep in mind that the entity must have a clear business purpose, and its activities must be separated from your personal activities. In other words, the business can’t be set up just to protect personal assets from creditors.

Family limited partnerships (FLPs) are used by wealthy families to reduce or eliminate estate taxes and shield personal assets from liability. In this case, you would set up a general partnership and make your family members limited partners whose interests could be protected from creditor lawsuits. As the general partner, you retain all decision-making authority. 

Like LLCs though, FLPs must also have legitimate business purposes. 

Devise Your Plan Now

The best time to protect your wealth is before you need to.

Once a lawsuit, divorce, or creditor claim happens, it’s too late. At Simon Quick Advisors, we help successful individuals build proactive asset protection strategies — so you can bolster your wealth and your peace of mind.

Schedule a free consultation with one of our advisors today to discuss how we can help you develop a plan to preserve your assets and wealth.

Sources

1. Hub International, “2025 Outlook Private Client US”
2. National Practitioner Data Bank
3. Commerce Institute, “What Percentage of Small Businesses Fail? 2024 Data Reveals the Answer”
4. IRS, “Estimating Tax Burdens by Wealth Groups
   

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