You like your money, right? Of course you do. And you don’t like the idea of somebody suing you and taking all that money away from you, right? Of course you don’t. Yet despite our strong desire for financial security, most of us don’t do some very basic things to help guard our finances from legal peril. Here are some steps you should be taking in your financial life to keep your money in your pockets and out of the courtroom.

• Keep records of all transactions. Whether you’re paying a bill or giving a charitable donation, you will want to have some sort of confirmation that the transaction took place. For bills, avoid mailing a check whenever possible. Instead, use your bank’s (often free) bill-pay system to place the burden of on-time payment on them; just beware the dangers of automatic bill-pay systems. For all other types of transactions, ask for some sort of receipt. If you have proof showing that money went from you to another party, that party will have a much harder time stating otherwise.
• Hold on to your tax returns. We should all know by now that it’s a good idea to hold on to your tax returns in case the IRS decides to audit you. If you know you’ve been an honest taxpayer, then keep your returns for four years (an extra year beyond the normal statute of limitations). The official IRS recommendation for tax record retention is seven years since they can come after you for up to six years if you underreported your income by more than 25%. To be extra safe, permanently store all of your important financial documents in an electronic, encrypted format.
• Know what’s on your credit report. If I showed you a copy of your credit report today, you should be able to tell me the details of every account, inquiry, and (heaven forbid) delinquency. When you pull your credit report–something you should be doing at least three times a year for free–if you don’t recognize an item on it, you should investigate and possibly dispute it. Mistakes happen, and you could be incorrectly dinged for a financial boo-boo you didn’t even make. It’s so much easier to correct this sort of problem when it first pops up than years down the road when a collection agency magically appears and demands payment.
• Make sure you have back-up. In the event that you are unable to perform your regular household financial duties, you’ll want someone who can temporarily take over for you. So make sure there’s a family member or someone else you trust completely who can handle your money matters while you’re out of commission.
• Plan for the future… and beyond. Not only should you have a clear picture of your current financial situation, but you should also prepare for events down the road. Of utmost importance should be planning your estate. A properly drawn-up will demonstrating what you want done with your assets after your passing can save your loved ones from lengthy court battles or other disputes that could tear your family apart.

If you have some advice for safeguarding your finances from legal trouble, please share your thoughts here. And be sure to tune in for part eight of this series which will focus on a more controversial topic: how to have a lawsuit-free marriage.