What Assets Are Protected In A Lawsuit? (2024)

FAQs

What Assets Are Protected In A Lawsuit? ›

Unless you take steps to protect them, most assets are not protected in a lawsuit. One of the few exceptions to this is your employer-sponsored IRA, 401(k), or another retirement account. At Bratton Estate and Elder Care Attorneys, our lawyers recommend putting an asset protection

What Assets Are at Risk in a Lawsuit? An asset is a possession that holds value and can be exchanged for cash. That includes real estate, bank accounts and personal property. All of your assets may be at risk in a lawsuit and also your future earning potential.

Individual retirement accounts, 401(k)s, and other types of tax-efficient plans can help you prevent the loss of your assets in case of a lawsuit. At the federal level, the rules are clear for 401(k) and employer-sponsored retirement accounts.

To put it bluntly, if you lose a lawsuit—one filed by a creditor, for instance, seeking to recoup the money you owe—you face the loss of assets such as your home, your car and money in your checking and savings accounts.

In general, retirement plans that are covered by ERISA are protected from creditors—and their lawsuits. A 401(k) is an ERISA-qualified plan, so it is likely protected if you get sued. There may be a few exceptions, such as charges brought by the federal government or if you allegedly wronged the plan.

Trusts are one of the strongest asset protection tools you can use. They can protect your assets from creditors, legal claims, and anything else threatening your estate or business. A trust is defined as an agreement that allows a third party to withhold assets on behalf of the beneficiary.

In California, some retirement accounts are protected (such as 401ks and profit-sharing plans). Others are more vulnerable to judgment creditors (such as IRAs). A judgment creditor's ability to get your retirement account in California will depend on what type of retirement account you have and how much you have in it.

When assets are placed in an irrevocable trust, creditors can't make claims against those assets. This means that if the creator is sued for old medical bills, those assets can't be touched so they can be passed down to that person's heirs as intended.

The Internal Revenue Code grants fairly broad powers to the IRS when it comes to retirement account garnishments. Specifically, the IRS has the right to levy or garnish your 401(k) to collect monies owed toward unpaid tax obligations.

What type of bank account cannot be garnished? ›

Some sources of income are considered protected in account garnishment, including: Social Security, and other government benefits or payments. Funds received for child support or alimony (spousal support) Workers' compensation payments.

In some cases, they may take legal action and request a bank levy. This may freeze your bank account and give creditors the right to take the funds directly from it. You won't be able to access the money in your account until the debt is paid. If you find yourself in this situation, you may wonder what you can do.

A living trust does not protect your assets from a lawsuit. Living trusts are revocable, meaning you remain in control of the assets and you are the legal owner until your death. Because you legally still own these assets, someone who wins a verdict against you can likely gain access to these assets.

For the most part, 401Ks in California are split down the middle in a divorce case. This means your spouse may be entitled to 50 percent of the value of your 401K, even if you were the sole contributor.

Other than a partial exemption for bankruptcy, there are no federally mandated exemptions from IRA garnishment. 4 Therefore, your retirement savings can be garnished to satisfy any federal debts. The most common federal debt satisfied by the seizure of IRA funds is back taxes owed to the Internal Revenue Service (IRS).

Some assets are considered “exempt” under state and federal law and therefore cannot be reached by creditors. Exempt assets include personal property, such as household furniture, clothing, or jewelry, and tools of a trade or business.

An asset is anything you own that adds financial value, as opposed to a liability, which is money you owe. Examples of personal assets include: Your home. Other property, such as a rental house or commercial property.

If a creditor successfully sues you in court and gets a money judgment against you, it will likely look for your assets and property. Once it finds your property, it can take steps to try to collect its judgment from that property.