Understanding Liability and Net Worth
To properly assess the risk that liability poses, it’s important to have a clear understanding of your overall net worth. Knowing your net worth helps identify which of your assets are vulnerable to liability, guiding your strategy moving forward. This process may reveal assets you often overlook or those you hadn’t previously considered exposed to liability, especially joint assets. Properly titling vehicles can be particularly important in this context, as vehicle accidents are a common source of liability. Effective titling can help protect your financial position.
Why Joint Assets Matter
For most individuals their home is jointly owned and represents one of their largest assets. In addition to this, couples may have other joint assets such as bank accounts, investment accounts, vacation homes, and collectibles. Joint ownership of assets increases their exposure to liability, which should be minimized whenever possible.
Who Should Own the Vehicle?
There are several ways to mitigate liability exposure associated with vehicles. For married couples, a general guideline is that each spouse should individually own the vehicle they drive. The approach limits liability in the event of an accident, as liability falls on the registered owner of the vehicle and the driver at the time of the accident. By ensuring that the owner and driver are the same person, liability can be restricted to that individual, protecting other joint assets from liability exposure.
Roadblocks to Retitling a Vehicle
An outstanding loan on a jointly owned vehicle can complicate this strategy, as the loan usually must be paid off before ownership can be transferred. If you plan to purchase a vehicle, it is essential to understand this requirement before securing financing. If there is no loan on the vehicle, the title can be transferred through the Department of Motor Vehicles for approximately $150. If you are an AAA member, the cost of transferring can be reduced by approximately $50.
When Joint Ownership Is Necessary
There are situations where joint ownership may be unavoidable, such as when a spouse is unable to obtain a loan for a vehicle or if multiple vehicles are owned and driven by both spouses. In these cases, you may want to consider buying an umbrella liability policy, which can cost as little as a few hundred dollars per year.
Consider taking a deep dive into your net worth and identifying which assets are owned by you and your spouse individually, and which assets are held jointly. Determine if a title change is needed for any of these assets. Where this is not possible, evaluate if an increase in your liability coverage is needed so that you can manage your liability exposure.
Steps to Consider
- Review Your Net Worth: Take a detailed look at your net worth and identify which assets are owned individually by you and your spouse, and which assets are owned jointly.
- Evaluate Vehicle Titles: Consider whether a change in title is necessary for any vehicles.
- Check Insurance Coverage: If changing a title isn’t feasible, review your current insurance coverage to ensure it adequately addresses potential liability risk.
Ready to Protect Your Wealth?
Proper titling and the right insurance strategy can help safeguard your assets. If you’d like guidance tailored to your situation, schedule a consultation with Rodgers & Associates today.
This article was originally published on August 18, 2018, and was updated for accuracy and relevance on the date above.
