Focus on Personal Finance
Are You Prepared for a Lawsuit?
Advance planning can help you avoid a financial meltdown.

BY RICHARD J. ALPHONSO, JD, CPA/PFS, M.S.T., AND SAMUEL J. YANKELOVE, M.D., F.A.C.S.

As a physician, these three words -- "You're being sued" -- are perhaps the worst that you can ever hear. If you haven't had those words spoken to you, count your blessings. But if you practice long enough, no matter how careful you are and how well you document, you're likely to one day face a malpractice suit, especially if you partcipate in a higher risk area of ophthalmology.

This month, we'll address the litigation issue, and attempt to help you arrange your financial affairs before any incident arises. We're not attempting to give you medical or legal advice, but only to provide some financial planning considerations that will enable you to put your financial house in order.

THIS LAWSUIT IS A NIGHTMARE

Consider the following real-life example: You examine a shy, 5-year-old, who's already under the care of a pediatric neurologist and a psychiatrist for depression. You find moderate hyperopia and accommodative esophoria, for which you prescribe glasses. The fundus examination seems normal, but fundus photographs document a suggestion of optic pallor. You give the photographs to the child's mother, who's a nurse, and tell her to show them to the child's primary doctors. Later, the child is diagnosed with a brain tumor, undergoes a resection, and loses his sight.

You're barely over the terrible shock that your patient has experienced an unfavorable outcome when your attorney tells you that the patient's counsel has filed suit and wants to send a moving van to your home to haul off everything. With this type of nightmare case, that's a real possibility if the judgment were to exceed your $2 million liability limit.

In this case, you can't transfer your assets to anyone else, as that would violate the fraudulent transfer statute. But you can arrange your finances before any problem arises to mitigate any potential damage by shielding your personal assets from future malpractice liability. This is just a good risk management practice. But it requires a skilled legal and financial planning team to tackle these complex estate-planning problems.

TAKE PRECAUTIONS IN ADVANCE

At the minimum, you should consider the following:

• incorporating your medical practice separately to insulate you against cross-liability of your practicing partners or shareholders
• having adequate malpractice insurance to cover you and your staff
• having a comprehensive estate plan designed by legal and financial professionals experienced in dealing with medical practitioners
• getting advice from legal professionals regarding permissible asset protection vehicles to insulate you against a potential financial Armageddon.

Also:

• If you're going to receive an inheritance from your parents, consider having them put those assets into a spendthrift trust for your benefit. If they leave the assets directly to you, you can establish a "bulletproof" trust for yourself.
• If your spouse expects to receive an inheritance, and you live in a community property state, partition your property to avoid commingling problems.
• In most jurisdictions that recognize the legal concept of "tenants by the entirety," you can designate property ownership so that your spouse comes ahead of judgment creditors.

Once you've been sued, your options are limited and you'll have to act quickly. First, notify your insurance carrier. Then meet with your financial advisor and attorney to assess your remaining options. Remedial action may not even be possible at this point. That's why taking advance precautions is so crucial.

HAVE YOU DONE ALL YOU CAN?

Though a malpractice suit is always a bad event, you should prepare in advance and take comfort in the fact that you've done everything possible, early enough, to protect yourself.

Richard J. Alphonso, JD, CPA/PFS, M.S.T., is president of The Financial Advisory Group, Inc., in Houston. The Financial Advisory Group (phone: 713-627-7660) provides personalized fee-only financial planning, investment management and business consulting services. Samuel J. Yankelove, M.D., F.A.C.S., is a practicing ophthalmologist who can be reached at eyelaserdoc@aol.com.