We’ve covered and will continue to cover the large number of professional and personal risks and threats to your wealth as a medical professional, which go far beyond basic medical malpractice risk. No matter what the first, or perhaps next, exposure actually is, doing nothing or failing to act under blue skies, while you do not have an existing claim, is the single most common asset protection mistake doctors make.
In the first 45 days of 2016, I’ve already personally consulted with four physicians who called for help in protecting their wealth from different issues. Sadly, I had to inform them that the only strategies they could use were relying on any insurance they may have been fortunate enough to have in place, buying an expensive litigation defense, and in the worst case, declaring bankruptcy. These exposures included*:
1. Personally guaranteed real estate debt of seven figures on a commercial building on the West coast;
2. A medical malpractice claim against one of six physicians in the chain of care;
3. A claim against a physician by investors for her role as an executive in a non-practice related business;
4. A bogus employee lawsuit by a disgruntled employee
Timing Is Everything
If there is only one lesson I’d hope the regular readers of my column have learned, it would be this:
The only legal and cost effective way to predictably use the law and the risk management techniques we cover here in detail is before any threat actually arises.
Unfortunately, failing to exercise the ethical and legal options at your disposal when things are going right, leads to desperation. This fully exposes them not only to the original risk but significant additional legal and financial peril as well.
Doing Nothing When You Can Leads to Dangerous Reacting When You Shouldn’t
Acting late, or perhaps “reacting” to any specific exposure is not only ineffective, it’s often actually illegal. While it’s a bad idea (and arguably legal malpractice) everywhere, 18 jurisdictions (Alabama, Alaska, Arizona, Arkansas, California, Kentucky, Massachusetts, Michigan, Nevada, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, South Dakota, Washington, West Virginia, and the U.S. Virgin Islands) have formally criminalized the use of conventional legal techniques, including many so-called “asset protection” measures that include the gift, sale or transfer of your assets out of your name into a legal structure or to any third party in an effort to delay, hinder or defraud a known or potential creditor. This is commonly referred to as “fraudulent conveyance” and is covered by the Uniform Voidable Transaction Act that defines certain presumptions of fraud and assigns the burden of proof on such issues.
In additional to civil penalties, you may be subjected to criminal jeopardy by acting late, even with the help or at the advice of an unskilled or worse, dishonest lawyer as you are ultimately responsible for any actions taken, just like with your tax return. The criminal jeopardy you face ranges from a misdemeanor to a felony depending on the exact move you make and the value of the assets you are trying to covey. As my friend, renowned creditor rights attorney Jay Adkisson explained in one of his FORBES magazine articles, reacting to a bad situation in this illegal way can get even worse than just criminal and civil liability if you’re caught. First, it could reduce the protection of your attorney-client privilege; second, it could make a creditors’ discovery motions easier to obtain and more intrusive; and finally, it could make a creditor’s attempts at a civil conspiracy or RICO (Racketeer Influenced and Corrupt Organizations) charges against all parties involved significantly easier to obtain.
In our next discussion, we will explain why common amateur planning moves like sham divorces, attempts to lien your own property or gift assets to your spouse or children in lieu of real asset protection often fail as well as other common traps to avoid.
*minor identifying details changed to preserve client privilege and anonymity