April 2, 2008

Hulk Hogan Blinded by Lawsuit

Protecting Your Assets---In Four Very Different Ways

While it is important to establish and grow your assets, it is equally important to protect those same assets from entities, individuals, and events that will diminish them. A classic example of an entity that will take away a portion of your assets is the Internal Revenue Service. Thus, at Frye Financial Center, we spend much time with clients advising them on how to structure their businesses and assets in ways that minimize taxation and maximize the building of family wealth.

Another important component in asset protection planning is the structuring of clients’ portfolios. Those of you who knew me “back in the day,” know that my background is in mathematics and that I began my career as a pension actuary. My point here is not that I was a math nerd, but that I “know from whence I speak” concerning the subject of risk and probabilities. We all know that the more aggressive and inherently risky a portfolio is, the greater the probability of higher returns. However, we also know that “stuff” happens unexpectedly; like men flying planes into buildings on 9/11/01, or respected financial institutions behaving irresponsibly and contributing to a sub-prime mortgage fueled credit crises. And when the bad “stuff” happens, aggressive portfolios go into freefall. Despondent investors sell and lose money. To avoid this scenario and to protect your assets (as well as your sleep and health), we use a sophisticated “Asset Allocation” approach in structuring your portfolios and balancing your risks.

Asset protection also comprises the proper structuring of your Estate Planning Documents*. As part of our Estate Planning package, there will often be provisions included and Trusts drafted to protect assets from bad marriages, bad relatives and bad people in general. We also establish Trusts for children and grandchildren which not only protect them from the bad guys, but which also protect them from themselves.

Finally, another crucial area of asset protection planning focuses on effective structuring of clients’ assets and entities to protect them against lawsuits. While certain professionals and business owners are more susceptible to lawsuits than others, the following tale illustrates how anyone can be vulnerable to being sued unexpectedly. The Hulk Hogan scenario is an eye-opening case, underscoring the need to have proper entity and asset structuring in place prior to an unfortunate, unexpected incident. 

THE LAWSUIT AGAINST HULK HOGAN

Hulk Hogan, whose real name is Terry Bollea, is now a defendant in a major lawsuit brought by the parents of John Graziano. Without getting into the minutia of the case, I will briefly summarize the nature of the lawsuit:

Graziano was a passenger in a vehicle driven by the 17-year-old son of Hulk Hogan, Nick Bollea. Bollea was racing with another vehicle when he crashed into a tree, critically wounding Graziano, who was seated beside him. Graziano’s medical bills have already exceeded $1 million. Apparently, he had the frontal lobe removed from his brain and remains in a “semi-conscious state.”

HOGAN’S HUGE PROBLEM

In a nutshell, here is Hogan’s huge financial problem: he owned the vehicle that his son was driving. Thus, the Plaintiffs are holding Hogan personally liable for all damages caused to their son.

Ultimately, a judgment against Hogan may reach into the many millions, far exceeding any liability insurance he has. It is very possible, depending on Hogan’s own asset protection plan, that he may lose much, or even all of his assets due to the actions of an irresponsible, testosterone driven teenager.

THIS IS MY MESSAGE TO YOU

My message to you is to avoid the mistake of spending a lifetime accumulating assets while neglecting to protect them adequately. Similar to the Hogan’s, you can be potentially blindsided by a major, unanticipated liability that severely diminishes your entire financial structure. Doctors and others in similar professions are keenly aware of an inherent, lurking danger; that is why they proactively take steps in the early stages of their careers to mitigate those liabilities and reduce their exposure. The message to my readers is that everyone who is concerned about their family’s financial security needs to do some planning with respect to asset protection, not only those who are more prone to lawsuits due to their professions.

HERE’S SOME INSIDE INFORMATION ON HOGAN…

The lawyers in our office* did a search and found that Hulk Hogan, apparently, formed Limited Liability Companies and a Family Limited Partnership after his son’s accident. We use these types of entities in our practice to protect assets from lawsuits. In this case, by creating these entities after the fact, was Hogan attempting to defraud the creditor? In all likelihood, that is the case the lawyers for Graziano will now make. 

CONCLUSION

If you think that incidents like these occur only to families of celebrities you are mistaken. A similar situation happened to a client of mine last year, when his son (under 21) caused a major car accident while driving intoxicated. But that story never hit the tabloids. A story about the son of an owner of a successful dry cleaning chain in Boca Raton doesn’t sell papers.

An employee of mine recently told me about the time her family’s playful dog, in a moment of characteristic over-exuberance, jumped on an elderly man and knocked him to the ground. Had they not previously made the wise asset protection move of converting their family business from an “S” Corp. to an LLC, the family would have faced severe financial consequences. (For more information on the protective advantages of an L.L.C. over an “S” Corp and of a P.L. over a P.A. click here)

There are many effective options for legally protecting assets from creditors. As I advise my clients seeking asset protection advice: be smart, be careful, be thoughtful, and protect what you have now…before you are served with papers.  

Austin A. Frye, MBA, JD, CFP®

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