Asset protection: A matter of degree

As authors of Wealth Protection, MD, and advisers to physicians throughout the country, we are often asked to help doctors protect assets against future lawsuits.

Many common misconceptions exist about this troublesome possibility. In this article, we hope to dispel some of the incorrect assumptions you may have, and shed some new light on opportunities for further asset protection.

Personal vs. practice protection

Nothing could be further from the truth. In fact, the practice's important assets are the most vulnerable to lawsuits, especially in a group practice. Any malpractice claim or employee claim (sexual harassment, wrongful termination, etc.) against any of the doctors threatens all assets of the practice. In other words, if you are in a group practice, you are underwriting all of the acts and omissions of all of your partners, to the extent of your practice assets.

The most important practice assets

The practice's accounts receivable (AR) is most important.

Your AR is what you, in fact, work for. This is your cash flow for the next 30, 60 to 90 days. What most physicians don't realize is that a lawsuit against the practice itself, created by a wrongful act of any of the partners, threatens all the AR in a typical practice setup. There have been cases where physicians had to work for free for a number of months because the lawsuit judgment resulting from the act of one physician created a loss of the AR for the entire practice. Don't let this be you.

Other important practice assets include the practice real estate, if any, and valuable equipment. If your practice has valuable real estate or equipment, these assets must be separated from the main practice. While the details of advanced strategies go beyond the scope of this article, there are a number of tactics we can use to protect real estate and valuable equipment from potential lawsuits against any of the physicians or the practice itself.

Personal protection: Matter of degree

The most common misconception physicians have regards their personal asset protection - shielding their personal assets from potential lawsuits.

In this endeavor, asset protection attorneys approach a challenge much the way a physician approaches being a patient. Like physicians, we asset protection professionals try to get a client to avoid "bad habits." For a medical patient, bad habits might mean smoking, drinking too much or a poor diet. For our clients, bad habits might include owning property in their own name, owning it jointly with a spouse or operating any medical practice with business assets exposed (see above).

We use an asset protection rating system for a client's overall situation from -5 (totally vulnerable) to +5 (superior protection). Exposing business assets, owning property in your own name, etc. - these are examples of what can land a physician in a -5 situation.

In this way, before we implement any sophisticated asset protection planning, we want to move the client from a -5 to at least a low negative or neutral number. This means eliminating any of the "bad habits" named above, and others. If you see yourself as a physician who has business assets exposed and owns personal assets in your own name or jointly with a spouse, you should talk to an asset protection adviser immediately. You don't want linger too long in the -5 category, as it is only a matter of time until you get "sick."

Basic asset protection

You treat a patient with a particular condition/disease; we treat physicians to solve their lawsuit vulnerability.

You may not recommend surgery for a patient right away, because the patient is not sick enough to warrant surgery. As this relates to asset protection, an asset protection adviser may not recommend the most protective structure for a client who doesn't need it. Perhaps, given that client's net worth and income, the cost of the most advanced structures may not be justified. If so, we move to the next best thing - solid, but not superior - strategies.