Two recently settled cases can serve as important lessons for physicians on the proper methods of successful asset protection.
Many physicians practicing in states without professional liability caps are interested in asset protection. The next time you walk through a Wal-Mart or go to your state's bureau of motor vehicles, look around. These are the people that could be "the jury of your peers." With that thought in mind, asset protection seems prudent.
This summer has seen the release of two court rulings that should be of interest to anyone contemplating asset protection. David Mandell is an attorney specializing in the field of asset protection for OJM Group, an Ohio-based financial consultant.
He came to be an expert on this topic because his father, a radiologist, and his brother, a cardiologist, both practice in a state without professional liability limits. "The goal of asset protection planning is to help clients shield assets before they have a problem," says Mandell.
In June, a Florida court decided the case of Ramos v. Motamed. Motamed was a retired dentist from California who had a multimillion dollar judgment entered against him after driving into Ms. Ramos. Dr. Motamed attempted to take advantage of Florida's asset protection laws when he purchased a $1.6 million condominium in Palm Beach. "Florida's homestead exemption shields an unlimited amount of home equity from creditors, with some geographic limitations" explains Mandell. Motamed, in an effort to demonstrate his residency in the state of Florida, obtained a Florida driver's license, library card, and registered to vote in the Sunshine State. Dr. Motamed claimed to be living in Florida when his deposition was taken.
However, Ms. Ramos' attorney was able to obtain Dr. Motamed's records from the Equinox Gym in California which demonstrated that he worked out there 300 days during the year he claimed to be living in Florida. While this might have helped his physical health, it was not good for Dr. Motamed's financial well-being. The Court found that his asset protection plan failed because he was not truly a resident of the State of Florida. "This case shows that proper asset protection involves more than paperwork and checking boxes," says Mandell.
In late May, a Nevada Federal Judge ruled in the case of TransFirst v. Magliarditi. Magliarditi, who thankfully was not a physician, had been found liable of fraud to the tune of a $4.5 million judgment in Texas. The successful plaintiffs than came to Nevada, where Magliarditi lived, and attacked various entities, like LLCs and trusts that were supposedly controlled by his wife, to satisfy the judgment.
Specifically, the plaintiff asked for a preliminary injunction against these entities, while the case moved forward. The court granted the injunction, citing numerous problems with the structures the Magliarditi had put in place – from undocumented loans to personal expenses of the husband being paid by entities he supposedly had no connection to, and testimony from the wife which showed she was ignorant to how the structures worked or how to operate them. This is another example of why asset protection planning only works if it is structured and maintained properly.
For those interested in asset protection Mandell offers a three step approach:
•Start asset protection before you have any liability concerns.
•Use a multidisciplinary approach – insurances, legal tools, and state exempt assets all play important roles in a proper plan.
•Once you have a plan in place, you are not done. Asset protection requires proper execution and annual maintenance with all formalities, so that it meets your expectations for protection if it is ever tested.
Physicians practicing in states that do not have professional liability caps need to give consideration to an asset protection plan.