For many Americans, their home is their most valuable asset amidst other assets such as businesses and land. Like any asset, a person’s home is vulnerable, especially in a debtor-creditor circumstance. Homeowners should, therefore, get an asset protection policy with an attorney to protect the value of their home at all costs. But how can one protect their home when facing a potential lawsuit? Here are some ways one can do that:
Umbrella Insurance
Just as the name goes, this type of insurance covers multiple situations that could result in a claim. The insurance can be business or personal, but it covers whatever insurance you may have. It is important to discuss the instances that the insurance covers and the coverage that you will get with your agent.
Transferring Home Ownership to Low-Risk Spouse
In some marriages, one spouse may be a high-risk individual depending on their business and lifestyle. In such a case, the home title should be under the other spouse who is low-risk. This, however, varies depending with the laws state you live in. When getting assets to recover a debt, a creditor cannot go for the assets under the spouse’s name. Although treating your home as a separate property is a good idea, it is important that you put in mind what would happen in the event of a divorce.
Domestic Asset Protection
About 15 states have both federal and state laws that recognize domestic asset protection trust. This type of trust protects any property under it from access by creditors. You can then consider putting your home under this trust, and you will be safe from any lawsuit.
Stripping Your Home Equity
Stripping your home equity refers to putting a lien on a home. Once you remove the home equity, you get a loan to replace it. This action makes a home a less attractive asset to a creditor. The trick lies in how you implement the loan on your home. No creditor can challenge a lienholder on a home so long as the lien is valid.
Tenancy by Entirety
Not many states allow homeowners to title their home under “tenancy by entirety.” What this policy means is that if one spouse finds themselves fighting a lawsuit, it is unfair for the creditor to get the house as the asset. That is because the other spouse is innocent and should not suffer because of the actions of their spouse.
Home Exemption
There exists a statutory exemption that protects the value of a home against a creditor. This amount varies from state to state, and so do the criteria for this exemption. If a homeowner meets the requirements for this exemption in their state, it is wise that they discuss with their attorney when seeking asset protection.
There is no single approach to protecting one’s home against a lawsuit. The correct way will vary with the state of residence, marital status, financial status, and home equity. Whatever situation that you are in, it is important to discuss the available options with an attorney who can help you create an asset protection plan that will suit your needs.