Ethics of asset protection

PIMD welcomes white coat investors. WCI is a physician-specific personal finance and investment website. White coat investing can help you become financially literate and disciplined, allowing you to devote your time and effort to the well-being of your patients, your family, and yourself. WCI truly believes that a financially secure doctor is a better partner, parent and practitioner. White Coat Investors is an authorized partner of PIMD.

When I first started blogging at The White Coat Investor, I thought I would write mostly about asset protection. It was one of five or six main topics on the blog. Then I discovered the truth about asset protection that most doctors don’t know: It’s incredibly rare to lose personal assets in a malpractice lawsuit. Being a risk taker by nature, I quit thinking about it too much, especially when I realized that the bulk of my net worth at the time was in retirement accounts that were excellent asset protection from my potential lenders.

I still blog about asset protection from time to time, and I talk about it all the time because docs are so interested in it. it’s WCI Online Course, and there are several podcasts dedicated to it This is my main point WCICON in Las Vegas was purely asset protection. If you’re not up to speed on asset protection basics, start with these posts:

Today, however, we’re not going to talk about the nuts and bolts of asset protection. We are going to talk about the ethics of asset protection.

“Morality? Can there be any moral considerations?” you say.

Well, you are going to find out.

Asset protection is “against the law”.

U.S. law is exclusive, or consolidated, under the Supreme Court. Courts don’t like it when you try to use one law (like LLC law) to get out of the consequences of another law (like the law against negligence) or when you try to use one state’s law against a judgment in another state. Yet it is inherently about asset protection laws. So, in this case, asset protection is inherently against the law.

Should you pay off your debt?

Most of us agree that if we borrow money from a bank or our brother-in-law, we have to pay it back. Why, then, do we think that, at least once all appeal options have been exhausted, a valid court judgment will not owe us anything? The court has determined that someone else was harmed by your actions. Why are you trying to pay them?

Doesn’t it feel right to lose everything for one mistake? Well, who can determine what is fair if not an impartial, professional court to interpret laws passed by hundreds of public officials elected by millions of your fellow citizens?

I understand the risk

Don’t get me wrong, I certainly understand the financial hardship that a sudden seven-figure judgment can have on your personal financial situation. These kinds of financial risks are perfect candidates to insure—and be well-insured—against. If I hurt someone, I want them to do the best they can, and insurance helps me do that. But when you start going beyond that, it’s time to consider the ethics of not paying someone what you owe them.

Our country’s laws provide significant protection against unlimited liability above and beyond the protection you would get from a reasonably sized liability insurance policy. For example, you can declare bankruptcy and have the debts against you erased. In general, doing so could cause you to lose a lot of your assets, but both federal and state laws exempt some of your assets from loss in that situation. For example, you can usually keep your retirement accounts and, depending on the state, often a significant portion of home equity, cash value life insurance and annuities. These bankruptcy laws, of course, vary by state. Is it fair? Is it fair that a bankrupt Texan can keep his home while a bankrupt Utah doctor loses his for the same liability? Maybe not. But it’s quite a moral dilemma, isn’t it?