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Can I lose my retirement savings in a lawsuit?

If you're facing a civil lawsuit, one of your biggest fears is likely whether you will lose your life savings if the person suing you prevails in court.

Civil lawsuits are common these days for a variety of issues, and they can be costly. A serious car accident that resulted in injuries or death can end up costing someone many thousands of dollars of their own money if their insurance doesn't cover the amount awarded to the plaintiff.

Most people's retirement savings are in specially-designated retirement accounts. Often these are employer-sponsored 401(k) accounts. These are a wise investment because a percentage of the funds that employers set aside from their paychecks is often matched by their employer. Can a winning plaintiff in a lawsuit be awarded money from a person's retirement account?

The good news is that if you have retirement savings in a pension plan subject to the rules of the Employee Retirement Income Security Act (ERISA), the money in that plan is protected. ERISA covers defined contribution plans and defined benefit plans. The 401(k) plans that many people have fall under ERISA.

If your retirement savings aren't in an ERISA-protected retirement account, the funds could possibly be taken in a judgment against you -- depending on the type of account you have. When you make withdrawals from your ERISA-sponsored plan and put the money into a traditional bank account, you'll lose the protection.

If you're concerned about what retirement savings a plaintiff could take in a lawsuit, it's essential to first determine whether your plan is protected by ERISA. Depending on what type of retirement/pension plan you have, it's possible that Florida law may offer you protection, even if federal law doesn't. Your attorney can provide important guidance.

Source: NJ.com, "Are retirement accounts protected from lawsuits?," accessed Dec. 06, 2017

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