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If Someone Sues You Can They Take Your House?

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This article answers the question of whether if someone sues you or takes legal action against you they have the right to take your house from you.

We also look at the different types of legal action you may find yourself embroiled in and why taking proactive steps to protect your assets, both your personal assets and your business assets, is so important to your financial well-being.

We finally look at the different methods of asset protection available, including the most effective ways you can employ to protect your wealth from predatory litigation.

Are you an entrepreneur or investor looking to safeguard your wealth for future generations of your family? Get the most robust protection available with an offshore trust, as part of a fully-integrated Nomad Capitalist Action Plan.

What happens to your assets if someone sues – TL;DR

Every potential lawsuit has the potential to ruin you, if someone sues you and you’re not adequately protected there is indeed the possibility that they can take your house to pay for damages, or indeed, any other assets or property you may own.

This is why you should put protections in place, such as having an offshore trust to protect your assets.

Can Someone Take Your House If They Sue?

It’s the stuff of nightmares, a lengthy and expensive court battle which ends up costing you everything, your business, your house, your car, all your personal items, all the money you paid into your mortgage, your entire life savings – everything gone, your life destroyed, all because of a lawsuit.

It’s a terrifying prospect, but is it a likely one?

Well yes and no.

The above example is more of an extreme scenario better suited to Hollywood than an actual courtroom, but as for the question about whether or not it’s possible that someone can sue you and take your house, the answer, unfortunately, is, yes.

It may indeed be possible that if someone sues you and wins, and you don’t have the money to pay them, you may end up being forced to put your house up for sale to pay them off.

In fact, that might not even be enough. Depending on how much you owe them, you may even end up in a scenario where you need to pay them your future earnings.

They’ve taken your house and it’s still not enough, sounds crazy, but it’s also something that could potentially happen if you don’t take proper precautions.

Obviously, these are the types of nightmare scenarios we would all like to avoid, which is why understanding the ins and outs of lawsuits and how to protect your assets from predatory litigation is so vital.

Primary Residence Protection

The good news is that in the US, most states offer some form of primary residence protection, though the level varies depending on each state’s law.

States like Florida and Texas offer an unlimited homestead exemption, while other states only provide protection up to a certain amount. These range from four-figure to six-figure sums, while other states, like New Jersey and Pennsylvania, offer no such protection.

The way homestead exemptions work is that they can be used to block the sale of your house to pay off creditors (but not mortgage lenders) if the exemption amount is more than the equity in your home.

Married couples can claim double the amount, another way to help protect their property.

The devil is in the details, however, as each state’s law is different and, although such laws do at least offer a basic level of protection, homestead exemptions cannot be relied upon fully to keep you safe and ensure you and your loved ones have a roof over your head when the lawyers come a-knocking.

That’s why it’s so important to make sure you don’t end up in such a situation in the first place.

So next we’re going to look at the different types of lawsuits that you can run afoul of, before looking more in-depth at ways to keep both your personal and business assets as safe as possible.

Types of Lawsuits

Since it’s possible that you could end up losing your personal residence and, indeed, many of your other assets also, to an unforeseen legal claim, understanding the different lawsuit types, and the dangers they present, is essential to your financial well-being.

So here are a few examples of some of the most common forms of lawsuits and why you should be wary of them.

The first category to be wary of are domestic-related lawsuits and other family law issues.

In addition to messy divorces and probate hearings, which can be costly both emotionally and financially in and of themselves, related rulings, for example for unpaid child support and/or spousal support, can also prove potentially devastating.

Landlord and tenant disputes are another common form of lawsuit, particularly in the US. So if you are a landlord and own multiple properties, either domestically or if you own foreign real estate, you owe it to yourself to be familiar with the law and take steps to protect yourself from legal action.

This also leads us to our next two categories, which are personal injury and negligence lawsuits.

Personal injury claims are, to quote the Simpsons, “like a lottery that rewards stupidity.” All it takes is some idiot to walk through a glass door because they thought it was thin air and suddenly you’re liable for massive damages. They do something stupid and you have to pay them all your money.

This type of lawsuit can be hugely costly but can nonetheless be offset by having proper insurance coverage. Just make sure you take the time to carefully read and understand your insurance policy so you know exactly what types of events are covered if someone has an accident on your property.

It’s much the same if you run a business. Employers need to be particularly careful of avoiding costly workers’ compensation cases. These which cost the US economy hundreds of billions of dollars annually, and even one such lawsuit could cost your company dearly.

Again, these work-related personal injury and negligence claims can also be offset by ensuring you have adequate insurance, and, of course, ensuring that you know, understand and fully adhere to all relevant workplace safety laws. (If you’re a limited liability company providing a safe working environment and have adequate insurance you need never worry too much about a workers’ comp lawsuit.)

Another potential pitfall is a wrongful termination lawsuit, whereby employers can be sued for firing employees without cause, for example, on the basis of racial discrimination.

Such cases can not only prove financially costly, but in the age of social media and websites like Glassdoor, can also prove irreprovably damaging to your company’s reputation and potentially more costly than any lawsuit.

Equally damaging, a product liability lawsuit, based on a faulty or dangerous product not only cuts into your company’s bottom line, it can also completely erode consumer confidence in your company and its products.

Finally, another common form of lawsuit, medical malpractice lawsuits, are, as their name suggests, more to do with doctors and medical practitioners, however if this is the industry in which you operate, represents a potential danger to be aware of as a lawsuit of this type can result in a lot of money.

Protecting Personal Assets

As we have already mentioned earlier, only a fool would rely on homestead exemption to protect their house and their personal property from a potential lawsuit.

Having homeowner’s insurance and insurance for your personal vehicle is a minimum requirement. So most people only need to worry about things like someone slipping on their driveway or the mailman being bitten by their dog.

Predatory lawyers exist out there to take advantage of these sorts of mishaps and they’ll squeeze you dry if they can, but, even if the lawsuit goes to court and you lose, it’s unlikely you’ll be thrown out in the street over it.

But if you have a business, that’s a whole other story. So you need to be aware that, unless structured correctly, both your personal assets, and those of your business, are at risk.

Your Company Structure & Business Assets

Your business structure is a huge factor in how safe your assets are and how much risk you are ultimately exposed to on a personal level if someone files a lawsuit against you.

If all you’re doing is running a small sole proprietorship then having proper insurance coverage should cover most of your worries. Well that and being careful to ensure all your debts are paid on time and you don’t wrack up too much of them.

If, on the other hand, you are overly reckless then yes, of course, creditors are free to seek damages from you and that puts all of your assets, including your personal property, at risk.

If that happens you literally have nobody else to blame but yourself.

A personal injury lawsuit could also, in theory, wipe out your business, especially if the injured party hires a particularly aggressive lawyer, meanwhile, your business creditors expect to be paid and you could wind up having to file for bankruptcy.

But what if you’re not the issue? What if there are no ambulance chasers involved? What if you’re in a general partnership where you’re doing everything right and by the book, but your business partner, it transpires, is doing anything but?

In this instance, there’s also little you can do to protect yourself against creditors. As partners in business you are therefore partners in liability, their debt is your debt. And there may well come a time when you need to pay far more than you had ever expected.

Imagine spending years and years to pay off your mortgage only to lose your house because you had to pay off your business partner’s debt.

Of course, it goes without saying that you should be doing whatever you possibly can to ensure you never end up with a business partner like that in the first place, and always make sure you only work with people that you feel you can trust 100%.

But let’s be honest, life never is that simple is it? As often happens in life we enter into agreements and contracts with people who we earnestly believe are on the level, only for their true colors to be shown later on. By which point it’s too late.

This can happen with best friends, even family members, you hear about it all the time, which makes it worse because, not only do you risk putting your financial well-being in jeopardy, there’s also the chance that you might damage your close relationships in the process.

That’s why, if you’re going to go into business with someone, no matter who it is, we strongly advise that you do so with some form of limited liability.

A limited partnership is better than a general partnership, but barely. There’s no point risking your assets in a partnership when there’s no need to, not when you can set up a limited liability partnership (LLP) that protects you from fallout should the partnership fail, or should your partner get into financial difficulty.

So if your partner does something stupid, like rack up lots of debt, it won’t be your problem. And, since it’s a limited liability entity, you’re not on the hook to lose your house and your possessions if your LLP gets sued.

Protecting Your Personal And Business Assets

For maximum security, however, you’re best off with a Limited Liability Company (LLC), which exists as a completely independent entity – legally viewed as a separate person – that can be sued directly.

Corporations, obviously, have considerably more paperwork and have greater managerial requirements but they also offer the highest levels of protection.

In this way not only do you enjoy the benefits of complete limited liability, with total separation of your personal assets and your company’s assets, but since a corporation exists as its own separate entity, it is distinct from you, as a person, adding an additional layer of protection between you and any potential creditors and/or litigators.

Thing is, with an LLC, all you’ve really got is a dividing wall between your company’s assets and your personal ones. Having a limited liability company doesn’t provide anything in terms of actual personal asset protection. For that you instead need to look at forming a different type of structure, a trust, more specifically, you need to be looking at creating an asset protection trust.

Benefits Of An Asset Protection Trust

An asset protection trust is a structure designed to protect your assets from creditors and litigation.

These specialised types of trusts can hold property on your behalf and add extra layers of protection between your assets and the outside world.

Many US states have laws allowing for the creation of asset protection trusts, such as Nevada, Delaware and South Dakota.

However, as we always tell our clients, the best forms of trusts used for asset protection are to be found in offshore jurisdictions.

An offshore trust in a country such as St Kitts and Nevis, for example, can be virtually impregnable for anyone with designs on helping themselves to your hard-earned assets.

For a start, if you’re sued at home but your assets are held in trust overseas, there’s obviously a geographical barrier between your assets and those who wish to gain control over them.

Secondly, in offshore jurisdictions like St Kitts and Nevis, The Cayman Islands or the Cook Islands, any foreign judgement won’t be upheld there, so inheritances, divorces, lawsuits, even bankruptcy proceedings, these things don’t matter as the local courts won’t recognise them.

Instead, anyone looking to gain control of your assets would have no other legal recourse except to go through the local courts, pay additional court costs and hire local legal representation only to invariably be ruled against and liable to pay your legal fees.

Such an impregnable structure acts as the perfect deterrent against predatory litigation, allowing you to protect yourself and your family. It can also help prevent creditors from coming after assets which may of more than just monetary value.

For example, you may perhaps own certain assets or property which have been a part of your family for generations. With a proper asset protection plan, you can help ensure these are forever kept out of reach of would-be usurpers and safe for future generations.

A Word Of Caution

If you already have a problem, or if you suspect there’s a problem coming, it may be too late to set up a trust now, because if you set one up now but you’re already in trouble, the trust can be invalidated.

And that’s why you need a strong protection strategy and be proactive in its implementation.

Another point, even if you use a top jurisdiction with strong asset protection, like the Cook Islands, you don’t want to put all your eggs in just one basket. You need to diversify.

Much like how we advise clients to have investments in different parts of the world, we also tell them to plant flags.

Maybe you want to own a summer house somewhere – so why not buy one in a country where you can get second citizenship and receive a second passport?

Take St. Kitts and Nevis, it’s one of the better offshore trust jurisdictions, but it also offers citizenship by investment.  

So, even in a bad scenario where a US judge takes your house, you still have a second house in the Caribbean that can’t be accessed, you still have a bank account there, you still have other assets in a trust and you have a passport that allows you to travel overseas.

Having such interlocking layers of protection can help you, even during the absolute worst-case scenario, but, given the tax savings and other benefits, can prove even more valuable when times are good.

Protect Your Assets Now

Understanding your insurance policy and having legal representation you trust will go a long way towards helping you to protect your assets.

If you have a business, meanwhile, you need to protect yourself further by ensuring you have limited liability. For better protection, however, you ought to use an offshore asset protection trust which can almost completely shield your assets from external risk exposure.

So if you are worried about losing your property and other assets to creditors or litigators, it’s time to get serious and create an asset protection plan. For expert advice talk to us about becoming a Nomad Capitalist client today.

Legal Battle Protection FAQ

Can I Lose My House In A Lawsuit?

Yes, you can potentially lose your house to a lawsuit, although you can take appropriate steps by ensuring you have proper insurance coverage and, if you run a business, opting for a limited liability structure to ensure creditors don’t try to get their money back by forcing the sale of your property.


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