Instructors and Personal Assets, law suit question

[LawnDart21 0]

This is my third season as a TM/Coach, and I was thinking the other day about the "Sue happy" society we live in and the potential for student law suits stemming from the DZ. Up till now I never really gave it much thought because, to be honest, I never really had much to sue for in the event of a law suit. But now, as my wedding is approaching and we start looking at houses, I realized that we have 2 cars a good retirement savings, and with the addition of a house, our assets are getting bigger. With that said, how do you other instructors out there go about protecting your personal assets from the law suit feeders that are looming in the shadows? I'm just trying to get an idea of how to best protect our assets in the event of a future law suit. I know the DZ waiver is designed to protect the DZ and the instructor, but in the event of ever being sued, I am trying to cover all my options. Thanks for the input. - Tom

--
My other ride is a RESERVE.

[TomAiello 26]

Keep in mind that I'm not a lawyer, so this is just my advice. If you're really concerned, I'd call a lawyer and ask.

Consider forming a corporation of some kind (one of the simple ones like an S corp or an LLC--I prefer LLC's personally).

Have the corporation employ you as a skydiving instructor, and have the DZ employ the corporation as an independent contractor (doesn't really take any effort on the DZ's part, so that ought to be easy).

If you've got a flow through corporation (so, not a C corp), you won't have to file any additional taxes or anything. You'll just have to declare the income and expenses of the corporation on your individual tax returns. If a student sues the corporation (which shields you), you can just have the corporation declare bankruptcy to discharge the debt, then dissolve it.

An upside to doing this is that you can all all your skydiving expenses (rigs, cameras, jump tickets, even gas to the DZ) business expenses, and deduct them from your taxable income. Be careful doing this, and make sure your income from skydiving slightly exceeds your expenses from it in most years, or you'll risk an IRS audit.

If you want an additional layer of protection, consider forming another corporation to hold your assets (so that even if you personally are sued in your capacity as an employee, your assets will be safe). You can get fancy with this, and form the corporation somewhere like Nevada (which has very good corporate privacy laws), or not, as you feel the need.

Another protective strategy would be to put all (or some of) your assets in your wife's name only--assuming you're not in a community property state. That way, if you get sued for something she had nothing to do with, they can't take "her" house, cars, etc.

Nothing can ever totally protect your assets. All you can really do is make it such a pain to get at them that it won't be worth the lawyer's fees.

There are a ton of good books out there on asset protection strategies. You might try doing a quick search on Amazon (or just go to Barnes and Noble and look through them) and reading up on the subject.

-- Tom Aiello

Tom@SnakeRiverBASE.com
SnakeRiverBASE.com

[Remster 30]

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If a student sues the corporation (which shields you), you can just have the corporation declare bankruptcy to discharge the debt, then dissolve it.

What would stop the lawsuit to be against the instructor directly?

Remster

[Nightingale 0]

A corporation is treated as a separate entity under the law, and therefore separates the liability of the corporation from that of the owners.


Edited to add: I would strongly advise AGAINST putting assets in one person's name only. First, if you split up, the other party's screwed. Second, if something happens to that person, you can end up with inheritence issues and assets can get tied up in court.

[AndyMan 7]

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A corporation is treated as a separate entity under the law, and therefore separates the liability of the corporation from that of the owners.

Remsters point was right on.

Forming an corporation is something thats really common when it comes to protecting owners. DZO's and plane owners do this because it insulates the owners from the actions of employees. If the contract pilot fucks up, it helps save the owner.

Forming a corporation does NOT help the employee at all. In the case of the pilot who fucked up, he could still be named as defendent. The veil of the corporation will not protect him.

In this case, where the owner IS the employee, it does little to help. The injured party would just sue the employee, instead of the corporation.

This is one reason I'm very hesitant to get into the tandem business. If I fuck up, there's very little protection for me andy my familys assets.

_Am

__

You put the fun in "funnel" - craichead.

[Remster 30]

Thats what I meant Andy.

The instructor himself would be an easy target (in liability anyways, maybe not in asset) since he's /she's the one who was there when shit hit the fan. Asset wise, the DZ would probably be a better target.

Remster

[TomAiello 26]

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In this case, where the owner IS the employee, it does little to help. The injured party would just sue the employee, instead of the corporation.

If I were a lawyer, I'd argue that there were liable parties (i.e. the corporation and the DZ) who were not named in that suit, and move for dismissal.

If you segment your assets sufficiently (i.e. your skydiving gear is owned by the skydiving corp, your home is held by a personal trust) it shouldn't matter if they sue you personally.

In my opinion, the best asset protection strategy is to own nothing in your personal name. It's easy to shift assets around amongst various other entities (none of whom are the "you" that might be liable) in an ongoing shell game, until the plaintiff's attorney's bills mount so high that the plaintiff gives up and walks away in disgust.

In answer to Remi's question: Nothing prevents them from suing you (or anyone else). The strategy is to make it not worthwhile for them to do so.

-- Tom Aiello

Tom@SnakeRiverBASE.com
SnakeRiverBASE.com

[TomAiello 26]

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I would strongly advise AGAINST putting assets in one person's name only. First, if you split up, the other party's screwed. Second, if something happens to that person, you can end up with inheritence issues and assets can get tied up in court.

As far as splitting up, I'm assuming that's (a) not really an issue, and (b) well discussed in advanced with appropriate documentation signed.

In terms of avoiding inheritance issues: You could do something like putting the assets into a corporation that dissolves automatically upon the death of the other principal, with the assets automatically reverting to you. Or, you could just make sure you have an appropriate will in place.

-- Tom Aiello

Tom@SnakeRiverBASE.com
SnakeRiverBASE.com

[chuckbrown 0]

All of the above posts, especially Tom's, highlight the various strategies to protect your assets.

In non-community property states (pretty much everywhere but California) putting things in your wife's name will protect you even if you get a divorce. Equitable distribution laws don't consider in whose name the property is, rather they consider as marital property all property owned by either spouse irrespective of who holds legal title. Having said that, you don't absolutely need to put your assets in your spouse's name alone; joint ownership will prevent a judgment creditor from selling your property to pay any law suit award. Since a judgment would be against the skydiver, the judgment can't be satisfied against property that a non-skydiver spouse has an interest in.

The best way would be to incorporate yourself even if you're the only employee.

Another method is to be in debt up to your eye balls. Judgment creditors are last in line.

Call a lawyer in your home state. He'll probably charge you $100 but he can give you an idea of what works best in your home state. If you're in PA, send me a PM.

[chuckbrown 0]

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Thats what I meant Andy.

The instructor himself would be an easy target (in liability anyways, maybe not in asset) since he's /she's the one who was there when shit hit the fan. Asset wise, the DZ would probably be a better target.

Plaintiff's attorneys don't waste time on someone who has no assets even if there is liability. Civil lawsuits are about money. Period. They will name the poor employee as a defendant, but if that employee has no assets, the judgment creditor won't even bother trying to collect from the employee. They'll go after the deep pockets.

[riggerrob 643]

Treat lawyers the same way you treat muggers.

When a mugger sees me staggering drunk through the red light district of some foreign port, he knows that he may or may not get some money off me,

HOWEVER, because of my size, stride and physical fitness, he KNOWS that he is going to get a bloody nose!

[AndyMan 7]

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Plaintiff's attorneys don't waste time on someone who has no assets even if there is liability.

I think this question was specific to an instructor who DOES have assets.

One reason I'm hesitant to get involved in instructing is because I do have personal assets. Just because someone is an instructor, doens't mean they're living in a tent behind the hanger.

_Am

__

You put the fun in "funnel" - craichead.

[Nightingale 0]

if you put your assets in a corporation or a personal trust, you don't officially own your assets, and therefore, if they sue you personally, they can't touch them.

talk to a lawyer in your area, because state laws vary.

[Andrewwhyte 1]

Wasn't OJ Simpson's home exempt from that lawsuit? Why? Becauas it is a home? Is that just a California thing?

[chuckbrown 0]

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Just because someone is an instructor, doens't mean they're living in a tent behind the hanger.

_Am

My response didn't mean to imply that instructors are living in tents on the DZ. The only instructors/TMs I know are already successful individuals who got into the teaching side of skydiving for personal enrichment. If you're a poor instructor/TM, no worries. If you've got assets, there are many, many ways to protect them. Tom's post pretty much summed them up in a nutshell. There's a reason he's a greenie.

Considering the strength of the waivers, this discussion is sort of academic. Gross negligence is a pretty high threshold to meet; you have to do something that you know will likely result in serious injury or death, and serious injury or death does result from your actions (or the probable consequence of your actions). You should worry more about the legal bills you can incur in defending a lawsuit, rather than the more remote possibility of having a judgment slapped on you.

[AndyMan 7]

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You should worry more about the legal bills you can incur in defending a lawsuit, rather than the more remote possibility of having a judgment slapped on you.

The only way I can see myself not being named if something goes bad is to ensure it appears that I do not have "deep pockets". That's more what I'm interested in. I doubt very much I would ever pay out, but I'm sure I could probably be bankrupted defending myself.

I'm not willing to put faith in the waiver protecting me, because it's the cost of litigation I'm concerned about more then the actual judgement. Yes, a waiver might save me in the end, but I'm still broke from attorneys fees.

Are you a lawyer? I spoke to Skydive Chicago's attorney at their Spring Expo, and his advice was that a corporation would offer me no protection at all, for the reasons I outlined in a previous post. Plaintiffs can pierce the veil of the corporation and go after the individual in responsible, which would be me. This is directly contradicted by what Tom said.


I am interested in the idea of having a corporation hold the assets, but I'm not sure if my wife will go for this. I'm also curious as to what exactly a "personal trust" is, and what is involved in administering one?

_Am

__

You put the fun in "funnel" - craichead.

[chuckbrown 0]

I am a lawyer, and Skydive Chicago's attorney is correct that a some courts will apply a doctrine called "piercing the corporate veil" to impose liability on corporate owners/directors. Courts in PA are reluctant to apply this doctrine unless the corporation is being used to perpetrate fraud or some other illegal conduct. The whole point behind the corporation is to provide protection from liability.

If an individual sets up a corporation and follows all the corporate formalities, e.g. bylaws, corporate meetings, corporate books and accounts, files corporate tax returns (sub-chapter S to avoid double taxation), etc., courts will be very reluctant to pierce the corporate veil even if there is only one shareholder, employee, etc. On the other hand if a corporation is being used to rip people off, you bet a court will pierce the veil.

Don't have the corporation hold your assets. Set up the corporation to run your skydiving business (instruction). That way if something goes wrong, your defense will be you were acting as an employee/owner of the corporation and have no liability for any acts of the corporation.

Your absolutely right though, when you talk about lawyer fees. Even to win on the waiver issue you're probably looking at $5,000 in lawyer fees. Fortunately the waiver issue should be decided before you get to a trial in front of a jury. The effect of the waiver is something that a judge would decide, not a jury.

[kelpdiver 2]

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Are you a lawyer? I spoke to Skydive Chicago's attorney at their Spring Expo, and his advice was that a corporation would offer me no protection at all, for the reasons I outlined in a previous post. Plaintiffs can pierce the veil of the corporation and go after the individual in responsible, which would be me. This is directly contradicted by what Tom said.
_Am

I suspect that would be true in many states when it's clear the only purpose of the corporation is to shield assets.

Tom, you mentioned reporting a small profit as best in dealing with the IRS - why? I know that they won't accept many years of losses, but what about just breaking even? I was thinking about this when training as a divemaster - you occasionally get small money ($50) that I didn't want to pay taxes on, not when the costs in insurance and travel were far greater.

[TomAiello 26]

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Wasn't OJ Simpson's home exempt from that lawsuit? Why? Becauas it is a home? Is that just a California thing?

I'm not sure about the OJ case, but many states have laws invoking "homestead protection" for a person's primary residence. Usually there is a dollar limit (unless you live in Florida) to the value of the home that can be protected that way.

-- Tom Aiello

Tom@SnakeRiverBASE.com
SnakeRiverBASE.com

[Nightingale 0]

A lot of waivers include a clause requiring someone who sues to pay the legal bills of the defendent. That wouldn't help you up-front, but it does provide grounds for a countersuit.

[lawrocket 3]

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Are you a lawyer? I spoke to Skydive Chicago's attorney at their Spring Expo, and his advice was that a corporation would offer me no protection at all, for the reasons I outlined in a previous post. Plaintiffs can pierce the veil of the corporation and go after the individual in responsible, which would be me. This is directly contradicted by what Tom said.

Bingo. If the corporation is nothing more than an alter ego of a person, then the single shareholder of the corporation can be held liable in most places.

Of course, if you waste more money in court trying to pierce it than you'll get, then that may be on the plus side.

If you form a corporation only to protect your assets, there could be trouble.

p.s. Regarding the OJ collection, they couldn't get his pension because of the Employee Retirement Income Securty Act (ERISA). It's a federal law designed to ensure that our senior citizens dont' lose pensions and go on the government dole.

My wife is hotter than your wife.

[AndyMan 7]

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If you form a corporation only to protect your assets, there could be trouble.

What do you suggest is a better option?

Would it make a difference if there were two shareholders? (say, my wife?)

_Am

__

You put the fun in "funnel" - craichead.

[lawrocket 3]

A better suggestion? Make the corporation do something more than just protect assets. Make sure it's in the business of doing something. Ensure that it has some form of assets, is making money, and pays you a salary, and keeps its own insurance, etc.

There is a well settled legal principle involved here: "If it looks like a duck, walks like a duck, and quacks like a duck, it's a duck." So you should make sure your corporation doesn't look, walk or quack like a duck.

Even if it IS a duck. It's gotta do something.

My wife is hotter than your wife.

[dbattman 0]

Here's a thought (take with salt, please). Someone sues you and gets a $10 million judgement. There is no $10 million. So what? Correct me if I'm wrong, but isn't there a limit to how much income they can attach? We don't have debtors prison here, either.

[fred 0]

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A better suggestion? Make the corporation do something more than just protect assets. Make sure it's in the business of doing something. Ensure that it has some form of assets, is making money, and pays you a salary, and keeps its own insurance, etc.

Isn't this also called the DZ?

Are Jumpmasters, TM's, etc. employees of the dropzone? If so, then isn't this talk of incorporating actually already accomplished? I'm not a lawyer, but it sounds like you're trying to add protection of a corporation when there's already one involved.

Now, if you're taking payment directly from customers, such as an independent camera person or private coach, then you'd better get yourself into an LLC, and yesterday.