Last updated: 02/28/2024

It’s no secret that doctors have higher-than-average incomes when compared to the average U.S. household (in 2024, the average U.S. household income was $59,428. vs. $265,000 for PCPs and $382,000 for specialists on average). The profession’s risks are also different than most professions. According to Medical Economics, 31% of all physicians have been sued at least once during their career. The risk increases as physicians age—and likely have more assets due to the length of time they’ve been earning income. Approximately 46.8% of physicians aged 54 years and older have been sued, and malpractice lawsuits can inflict $30,000 – $100,000 in legal defense fees, on average.

General estate plans like wills, trusts, and POAs are good to have in place, but preparing for other possible situations that can negatively impact your assets, specifically personal or professional divorce, is essential for high earners and high-net-worth individuals. Divorce can get expensive, especially when large sums of assets are involved. Alimony, child support, and moving and homeownership expenses can add up quickly, not to mention the possibility of splitting half your assets with your ex-partner. An estate planning attorney can help with a prenuptial agreement and other asset protection methods after marriage. Professional divorce with a business partner or practice adds another layer of complexity to planning. Enlist the help of a business attorney when creating contracts and structuring your business to help protect yourself from issues down the line.

Protecting your assets now can prevent headaches, costly litigation, and asset losses in the future. Advanced preparation is key to protecting your assets—these strategies generally fall under estate planning, retirement and income planning, and business planning, including the best ways to organize business and financial matters to decrease your liability and risk and shield your growing wealth and future earnings. Doing nothing or waiting until you have a claim against you before protecting your assets is one of the biggest mistakes you can make. Here are 8 asset protection strategies for doctors.

Asset Protection Strategies for Doctors

1. Protect your marriage—by staying married

While doctors are less likely to get divorced than the average American—Harvard reports that approximately 24% of physicians have been divorced when compared to 40-50% of Americans—it’s still a potentially expensive risk. Factor in not only legal costs but also alimony, child support, and the potential to have to split half of your net worth and assets.

Take steps to protect your marriage from divorce, including regular one-on-one time, improving communication, and counseling if needed.

2. Get a prenup

Prenuptial agreements sound scary at one of the happiest times in your life, but they can protect you and your future spouse from the future unknowns. You and your spouse will be required to disclose all of your assets, debts, and more, then outline the financial obligations (e.g., asset sharing/splitting, spousal support, etc.) for each partner should you divorce.

3. Have the right insurance – umbrella, malpractice, disability, commercial liability

The chance of being sued is a real concern for physicians, and malpractice insurance can help alleviate its impact. Ensuring you have an adequate level of protection is key; consult other physicians in your area and specialty to see how much coverage they have to give you a ballpark range for your coverage.

An umbrella policy is considered secondary coverage on your assets, as it gives you extra coverage beyond that of your homeowners and auto insurance and can cover gaps in your coverage—plus it’s relatively inexpensive, especially for the peace of mind it can provide. This insurance is an added layer of asset protection that can help protect you if you’re sued, injure someone, or if someone is injured on your property (outside of practicing medicine).

Disability insurance can be an overlooked coverage area, but for a physician whose greatest asset is their ability to work and earn, it is an essential one. Finally, properly insuring your business (if you’re a practice owner) can protect you from business liabilities, like being sued by an employee.

4. Add your spouse to important accounts and assets, like real estate and retirement accounts

Depending on your state’s rules, laws like tenants by the entireties may protect your real estate, primary home, and retirement accounts if both you and your spouse are on the titles. This asset protection strategy means that each spouse owns the assets entirely by themselves, which essentially shields jointly owned property from creditors. Keep in mind that this law doesn’t protect assets from joint obligations. Investigate if this is an option in your state and if it’s right for you.

5. Put your money in protected retirement accounts

Saving for retirement is one area where “bouncing back” from a financial setback can be hard; starting early and taking advantage of compound interest are keys to building up enough retirement savings to live comfortably. Again, depending on your state’s laws, your retirement accounts may be protected from lawsuits—at least to a degree, as a judge may be able to levy a judgment while leaving “enough” for you to live on in retirement—but it’s important to investigate when setting up and determining how to fund your account(s).

401(k)s and 403(b)s generally offer more protection than IRAs. HSAs and 529 plans have some protections but usually not at the level of other retirement accounts.

6. Set up legal protections by leveraging trusts and LLCs

An asset protection trust is an albeit complicated irrevocable trust that protects your assets from creditors. Before setting this up, consult with your financial team and an estate planning attorney to discuss if it’s right for you.

It’s also important to separate your personal and professional assets through an LLC or corporation. Again, a business attorney can help determine which legal protection is right for you, your intent, goals, assets, and business setup. Protecting your business assets is just as important as protecting your personal assets.

7. Learn your state’s asset protection laws and enlist the help of a lawyer who specializes in estate and/or business planning

Each state has different and specific laws regarding asset protection from creditors and legal proceedings. It’s worth investing the time to research and learn your state’s laws and seek out a lawyer(s) who specialize in the planning areas you need.

8. Devise an effective tax strategy

Use a CPA who is experienced in working with physicians to devise an effective tax strategy that helps you keep more of your wealth by reducing your tax liabilities (where possible).

The best next steps to start protecting your assets are to research the laws in your state in comparison to your situation and what you’re trying to achieve, then meet with a financial planner, financial or investment advisor, and business and/or estate planning attorneys to fine-tune the details. A little pre-work now to ensure you’re properly and adequately protected across your personal and professional assets can make a big impact on your financial future.

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References

Backman, Maurie. (2020. February 18). Are You Well-Paid? Compare Your Income to the Average. The Ascent. https://www.fool.com/the-ascent/research/average-us-income/

Devji, Ike. (2020, November 10). Doctor’s biggest asset protection mistakes. Physicians Practice. https://www.physicianspractice.com/view/doctor-s-biggest-asset-protection-mistakes

Kane, Leslie. (2020, June 24). Medscape Physician Debt and Net Worth Report 2020. Medscape. https://www.medscape.com/slideshow/2020-compensation-debt-worth-6012988#1

Lambert, George D. (2021, April 29). How to Protect Your Assets From a Lawsuit or Creditors. Investopedia. https://www.investopedia.com/articles/retirement/07/buildawall.asp

McDowell, Erin. (2021, July 30). 13 surprising facts about divorce in the US. Business Insider. https://www.businessinsider.com/alarming-facts-about-divorce-in-the-us

McGreevy, Sue. (2015, February 19). Doctors and Divorce. Harvard Medical School. https://hms.harvard.edu/news/doctors-divorce

O’Reilly, Kevin B. (2018, January 26). 1 in 3 physicians has been sued; by age 55, 1 in 2 hit with suit. AMA. https://www.ama-assn.org/practice-management/sustainability/1-3-physicians-has-been-sued-age-55-1-2-hit-suit

Physician Tax Solutions. (n.d.) The 8 Biggest Asset Protect Mistakes Doctors Make. https://www.physiciantaxsolutions.com/taxes/the-8-biggest-asset-protection-mistakes-doctors-make/

The White Coat Investor. (2019, April 22). Top 16 Asset Protection Strategies For Doctors. https://www.whitecoatinvestor.com/top-16-asset-protection-moves-for-doctors/

Wealthkeel LLC. (n.d.) 8 Simple Asset Protection Moves for Physicians. https://wealthkeel.com/blog/8-simple-asset-protection-moves-for-physicians