Dear Clients, Colleagues, and Friends,
Legal Malpractice. It lurks in the darkness, waiting to pounce on naïve, unsuspecting lawyers, and yes, even the great ones too.
These are two of the most terrifying, haunting words, and in abject terror, we shape our entire professional careers to avoid any situation that could lead us into the deep hole of exposure. We agonize over our daily choices as we feel forced to tiptoe around combative clients, race against looming deadlines and unreasonable opposing counsel, research the newest case law updates and determine the judiciousness of being asked to lower our fees yet again.
It’s always in the backs of our minds… that fear of being caught up in something we can’t control, but still we think, “It can’t happen to me.”
Although most of us live in tenuous denial, malpractice lawsuits do happen. And they happen fairly often. An article published by the American Bar Association stated that an estimated 5-6% of all attorneys face legal malpractice claims yearly, with some individual claims of liability reaching over $50M in damages. The ABA also reported that lawyers starting their legal career in private practice today are likely to have between one and three legal malpractice claims during their professional career. That number rises if legal work involves a highrisk practice area. The most common malpractice claims include failure to know and correctly apply the law, planning errors, failure to file documents, conflicts of interest, fraud, clerical errors, tax consequences, and poor client communication, among other types of complaints.
These statistics aren’t simply academic. Recently, several high-profile legal malpractice cases in the news have sobered the legal community. Some cases are so huge that entire firms have imploded, even when only one member of the firm is at fault.
The law firm of Rutter, Hobbs and Davidoff was recently slapped with a $10M jury verdict when a former client claimed the firm committed legal malpractice in drafting a separation agreement between he and his employer. Although only two attorneys were ultimately implicated in the claim, the mid-sized firm quickly dissolved under the huge liability as its other partners and associates jumped ship. In another example, rapper 50 Cent sued his former lawyers at Garvey Schubert Barer for $75M in damages, claiming that their misinformed legal counsel had grave financial consequences that directly led to his bankruptcy.
It’s probably safe to say that not many firms carry professional liability insurance of $75M. What happens to a firm’s assets – and the partners’ assets – when insurance carriers only cover a fraction of the cost of a potential legal malpractice judgment? Can a lawyer do anything to protect against a disastrous legal malpractice claim, justified or not?
As any good lawyer will tell you, it depends. After all, timing is everything. If you “firewall” your assets by performing comprehensive estate planning with asset protection BEFORE a lawsuit occurs, you may be able to protect yourself. If you try to do it AFTER, it’s already too late.
Asset protection planning can help protect businesses and estates against unforeseen lawsuits. First class estate and asset protection planning services are not cheap, but what will the cost be if you do get sued and haven’t installed these legal “firewalls?” Defending a legal malpractice lawsuit could cost more than what it might cost to protect an attorney’s whole business or entire estate for their whole life. And, even better, Uncle Sam could help subsidize the cost through the utilization of the tax code.1 Considering these benefits, coupled with the potential risks of losing it all, an upfront investment in such asset protection planning now seems like a no-brainer in protecting yourself later. For any lawyer practicing today, this is an opportunity for peace of mind and job stability.
Take this moment to consider your own situation. Are your personal and professional assets “firewalled” against unforeseen liabilities? Whether you are seeking to protect business or personal assets, a timely and effectively created asset protection structure to protect against a future unforeseeable liability claim can make recovery beyond your insurance policy limits unlikely and get the case settled early and for far less than not having a structure in place at all.
If your assets are exposed, call us for a consultation to discuss “firewalling” your business or estate with a comprehensive estate or business plan with asset protection. Don’t let time, money or denial come back to haunt you.
Yes, lawsuits can happen to you… but assets can be protected.
1 IRC Section 212(3) permits the fees paid for tax planning to be expensed.