Lawsuit Protection Part I: Advantages of Being Judgment Proof
In this three part series of articles we are going to discuss ways to immunize wealth and assets from lawsuits. Part I (this article) will discuss the concept of being “judgment proof.” Part II will delve into the concept assets that need to be protected. And Part III will broadly overview ways to protect assets from creditor claims, making them judgment proof in essence. Many people with “nest eggs” are rightfully concerned about ways to protect themselves against lawsuits.
It’s a given that people with “nest eggs”–people with any sort of significant assets–are prime targets for shark-like plaintiff’s lawyers. It’s a concern we hear about every day at Lodmell & Lodmell. The reason for this is simple. The vast majority of plaintiffs lawyers work for contingency fees. That means that they only get paid when their clients collect. It follows, of course, that plaintiff’s attorneys target and sue only those people who are able to pay in the event that a judgment is won.
What Does It Mean To Be Judgment Proof?
So the question becomes: What is the best way to discourage aggressive plaintiff’s lawyers? One way is to not have any assets. People without assets are often termed “judgment proof” in the legal community. Being judgment proof is an excellent form of lawsuit protection, because attorneys do not want to waste their time and effort pursuing individuals or businesses that will be unable to pay up.
Remember the concept of contingency fees addressed above? When lawyers work on contingency fees, they do not receive upfront retainers from clients and they do not bill clients on an hourly basis. The only way a lawyer gets paid on a contingency fee case is to win the lawsuit. When a lawsuit is won, attorneys working on contingency fees are entitled to 30% and at times even 40% of the amount of the verdict. In other words, plaintiff’s lawyers get paid only when they win a case. If a plaintiff’s attorney loses a case, they get no compensation and are often “out” the expenses of litigation (e.g. court costs).
As a result, plaintiff’s attorneys must evaluate several factors when deciding whether or not to accept a new client. They must determine the likelihood of establishing liability against the defendant (either at trial or for purposes of settling prior to trial), and they must determine the likelihood of the defendant’s ability to pay. The latter–a defendant’s ability to pay–is by far the most important factor. If a defendant is judgment proof, as discussed above, then they will be unable to pay. As the saying goes, “If you’ve got nothing, you’ve got nothing to lose.” Pursuing a course of litigation against such a judgment proof defendant would be a waste of a plaintiff attorney’s time and money, because even if liability can be established, there is no way to collect. And if there is no way to collect, there is no way for the shark-like plaintiff’s lawyer to get paid.
While plaintiff’s attorneys may market themselves as people who want to help the injured, they are really “in the game” for the 40% contingency fees they receive for winning or settling cases. As a result, it’s an absolute anomaly to see a lawsuit filed against a business or individual that does not have assets and an ability to pay.
The takeaway from this article is very simple: Being judgment proof provides an excellent form of lawsuit protection. It simply creates a huge disincentive for lawyers to take any action against you. How this applies to a person with significant assets will be discussed in the third part of this series of articles: Lawsuit Protection Part III: A Judgment Proof Portfolio.