Protect Your Assets from Lawsuits
Consider the following situation. You are called to remove raccoons from inside an attic. After finding an entrance hole, you decide to make a blind set with a 220 conibear-style trap. While filling out the paperwork, you remind the owner about the dangers of the trap and tell her to keep her children away. Later that night your phone rings. It turns out that a five-year old liked the trap and decided to “handle it”. Sure enough, the trap snapped and severely injured his left arm. The child’s mom is extremely upset and informs you in no uncertain terms that you will meet again in court. A few days later you are informed that you are being sued and her lawyer is one of those ‘TV injury jocks’. Six months later you find yourself looking for an apartment because she won your house.Sound far-fetched? Perhaps, but in our increasingly litigious society, businesses and individuals are being sued for less and winning big compensatory damages. The question is: Are you prepared for the possibility of being sued? Now a days, it is not a question of if you will be sued but when you will be sued. So in light of this hostile business environment, it is paramount that you enter the animal control business (ADC) fully aware of the financial risks, not just the rewards of owning your own business.
First, you should understand that there is a difference between being sued and losing the suit. Anyone can sue anyone for almost anything. The fact is there is no sure-fire way to protect yourself from being sued, except perhaps becoming a hermit or killing yourself. Even in those cases you can still be sued for abandoning responsibilities or in the case of death, your estate being sued for possible damages which occurred during your death. What you can do is reduce the chances of being sued and limit the amount of your assets that can be used to settle a suit. Reducing your liability is the topic of another article. This article seeks to address the second issue of how to protect your assets in the event you are sued (Note I am not a lawyer, always consult a qualified attorney before acting).
How you protect your assets depends upon the type of business you are running. The most common kind of ADC business is called the ‘sole proprietor”. This kind of business is often chosen by many people because it is inexpensive and easy to set up. Under this form of business, you, the worker, are the company. The problem with running your business as a sole proprietor is that there is no distinction between you the individual and the job you are doing. In other words, whatever you do as an animal controller you are doing as the owner of a house, car and savings account. So if someone wins a suit against you they can go after all your assets, not just your traps or the truck. There are three methods sole proprietors can use to protect assets.
Protection Method #1.
The first is called the poverty defense. If you are poor and don’t have any real money then you can’t be successfully sued. The problem with this approach is that it lacks professionalism (what happens if you really were at fault, you won’t be able to fix the damage?). If a judgment is successful against you, it stays in force for twenty years. Thus even if you don’t have money now, the money could be collected within twenty years. Even if you are willing to wait for the statute of limitations to run out, who wants the notoriety or the trouble of looking over your shoulder all the time? Obviously, the poverty defense isn’t a very responsible way to protect your assets.
Protection Method #2.
The second defense consists of obtaining liability insurance. Liability insurance works on the deeper pockets theory. By having an insurance policy the plaintiff (the person suing you) will go after the insurance company rather than you and your house. This assumes of course that you have enough insurance to handle the damage and penalties. Talk to your insurance agent and lawyer to help determine how much protection you need for it will vary from state to state and by how much and what kinds of work you do. Obviously, if you work on houses worth 250,000 dollars it might be proper to have insurance that will at least replace the house should something happen.
Protection Method #3.
The third defense, which can be used in conjunction with the second, relies on putting all your assets in your spouse’s name. This is really a variation of the poverty defense. By placing your assets in someone else’s name, the plaintiff’s lawyer can’t go after them because they aren’t yours. The key to this defense is that you place the assets in the other person’s name before any suits are brought against you. Otherwise, a lien can still be placed against the assets. Before you do anything drastic, keep two things in mind. How good is your marriage? Once you transfer assets to someone else, like your spouse, you have given up control. So in any divorce settlement, you will have trouble getting at those assets. The second concern is how much liability does your spouse have? If her work is in a field where a great deal of suits are brought then it might be better not to transfer assets. It does no good to transfer assets to someone else who has as much risk as you do.
Protection Method #4.
To help better protect your assets from liability lawsuits, lawmakers have made provisions for people to create a legal entity called a corporation (Incorporation) or Limited Liability Company (LLC). By incorporating or forming a LLC, you create a company that has its own existence apart from you. Thus you become an employee of the corporation or have the shield of the LLC. So if someone wants to sue, they can only sue the corporation/LLC not your personal assets. Unfortunately this protection comes at a price both in fees and paperwork, albeit worth it given the protections they provide. You can visit LegalZoom.com for details on how to set get incorporated or form a LLC.
Incorporating or creating a LLC will provide you with a significant amount of protection, but not 100% protection. Failure to adhere the following guidelines can cost you dearly. First, incorporating will only protect you when you are operating within the incorporation’s charter. The charter describes what sort of business you will be involved in. For example, if your charter says, “Trap All Company will be involved in animal removal” and you begin to re-floor houses, than your incorporation won’t protect your work as a floorer. This is why most charters are broadly written to include all lawful business practices. This wording allows the owner flexibility to grow the business into any area he or she desires. Second, you must ensure that clients understand that they are hiring a company and not an individual. Payments should be made in the name of the corporation, not to you personally. When you have incorporated, you should never say, “I personally stand behind this work”. That kind of talk blurs the distinction between you and the corporation. Once that barrier is blurred a lawyer can use that information to “pierce the corporate veil” and go after your personal assets. Third, incorporating will not protect you from the liability arising from criminal activities, such as tax evasion. By the way, if you make your spouse the corporate treasurer and the IRS accuses your business of fraud, your spouse will be personally liable.
Aside from incorporating or insurance, your state may offer other ways to protect your assets from liens. For example, Massachusetts has a homestead law. If you declare your home a homestead then the house is insured against foreclosure. I strongly recommend that you talk to your attorney to see if this law or others like it exist in your state. For in my state, it is an inexpensive one-time fee for such an important safeguard.
If you are feeling overwhelmed and/or worried, you should. Liability is one of the risks and headaches that arise from being self-employed. However, talking with a qualified lawyer (namely one familiar with business law) before anything happens is your next first step. The second step is following his/her advice. Taking the necessary precautions now can go a long way in protecting the property you worked so hard and long to accumulate.
About the Author
Stephen M. Vantassel is a certified wildlife control operator who helps individuals, businesses, and agencies resolve wildlife damage issues through training, writing, expert witness, and research. His latest books are the Wildlife Damage Inspection Handbook, 3rd edition and The Practical Guide to the Control of Feral Cats. He can be contacted at wildlifecontrolconsultant at gmail dot com.
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