Physicians devote the bulk of their adult lives in training, honing skills, and developing their practices yet often do not spend time to protect the many years of investment. Medical issues are one of most visible liabilities in today’s legal system. Even when there was no intent, liability is often based on net worth rather than wrongdoing; few jurors relate to a doctor. Our legal system makes it easy for a plaintiff to bring a large lawsuit and thus it has become increasingly important to protect wealth.
The United States is saturated with litigation; we are host to 95% of the world’s lawsuits. Expanding theories of liability and significant judgments have made lawsuits a business, and to be profitable, one sues people who have assets and an ability to pay. While the lawsuits that get press tend to be class actions against big companies, the most common cases involve day to day events. Some of the more common lawsuits today are malpractice, business breakups, acts of employees and agents, workplace claims, serving on a board, etc. Physicians are a common target of litigation as they are perceived as high net worth and address the most precious of all assets; health. Though medicine is an art and a science, patients often have unrealistic expectations; discounting risks and often disappointed with anything other than a side effect free result.
The Gilette case is a recent example (August 18, 2009, Orange County, NY). A teenage girl saw a podiatrist to treat a wart on her left heel. The doctor excised the wart with a scalpel. Unfortunately, a side effect of the treatment was risk to the Achilles tendon, which created pain and follow up surgeries to correct. The jury did not find the procedure was malpractice but rather the lack of informed consent created liability (the plaintiff alleged that the doctor did not advise her of more conservative treatment options) and awarded $3 million.
The concern with protecting assets is not new. In the past many would use a corporation, buy large amounts of liability and malpractice insurance, or move assets into the name of a child or a non-working spouse. A corporation is intended to limit business claims to business assets, still corporations are routinely pierced and personal liability attached. Malpractice and liability insurance are important, however, there are many claims that are not covered (divorce, most employment claims, business disputes) and it has liability limits. Using other family member’s as owners merely shifts the risk to another person, makes controlling children and dealing with a divorce very difficult, and can trigger gift tax.
The way we own assets is directly linked to a creditor’s ability to reach it. Assets owned personally, jointly, corporately, in general partnership, etc. can be reached by a creditor. A successful lawsuit can put a lien on the property preventing the owner from selling or borrowing against the asset until the lawsuit is resolved, which can be years. Alternatively, a family can own assets in entities making them unattractive as a defendant. We often structure businesses to segregate key assets (i.e. intellectual property, machinery/equipment, receivables) and insulate them from practice risk.
Today’s juries are not shy in handing down large awards, which can eliminate years’ worth of efforts in one day. For some families, this occurs at a point when the funds can not be re-earned or replaced. A clear-cut insulation strategy can go a long way in providing a physician comfort to move forward with a practice and other business ventures without open risk.
Adam Chodos, Esq., CPA
Adam Chodos, Esq., CPA, is the managing member of Chodos & Associates, LLC, a boutique private client law firm, with offices in Boca Raton, FL and Greenwich, CT, focusing on wealth consulting, asset protection, wealth preservation, business succession, and advanced estate planning. Previously, Mr. Chodos practiced law at the New York headquarters of Sidley Austin Brown & Wood and with Ernst & Young, LLP as a certified public accountant. He holds a B.A. in economics, summa cum laude, from the University of Pennsylvania and a J.D., high honors, from Duke University. Mr. Chodos is a member of the New York, Connecticut, and Florida Bars. mail@adamchodos.com
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