3 Reasons Your Church Could End Up in Court

By Raul Rivera

As we continue to press forward into 2017, our hope is for our beloved country to make a turn back to God and His Word. 

Unfortunately, the legislative culture continues to be hostile towards churches. Moreover, we live in a society that is litigious in nature, thus making it crucial for pastors and church leaders to strengthen the legal side of their churches and ministries. 

In fact, some statistics indicate that nearly 1,000 churches are sued every month; and these lawsuits are not just from people with malice intent, but also from individuals who are considered devoted members and trusted confidants of the pastor.

As a result of these statistics, we often ask pastors at our Ultimate Church Structure Conferences what they are doing to stay ahead of this wave. The pastors’ responses reveal that the majority of them do not know how to strategically protect their church from a lawsuit. Nor do they know the steps they should take to move forward.

In this post, we will look at common reasons why churches end up in court. Then we will examine a case study involving Georgia’s oldest church, and how a certain strategic move on your part can help protect your church’s assets. 

First, let us see how the instruction that Jesus gave His disciples applies to your church’s legal protection strategy.

Does your church have a legal persecution strategy?

Jesus gave His disciples an important directive when He arranged the first Christian outreach. After anointing them to heal the sick, cast out demons, and raise the dead, He told them to be "wise as serpents and innocent as doves" because they would suffer legal persecutions. 

The Church of the 21st century tends to excel at being innocent as a dove, but rarely knows how to be wise as a serpent within the context of what Jesus told the disciples. He sent out the 72 and expected them to use wisdom to manage the legal persecutions that they were going to face. 

Churches today need to have a legal persecution strategy in place. Sadly, this type of planning often falls on deaf ears with today’s church leaders.

Churches today need to have a legal persecution strategy in place.

3 common reasons why churches end up in court

There are several reasons why churches end up in court. However, the three reasons listed below repeatedly cause issues because churches have no real response. 

1. Personal injury claims: 

Every year, thousands of churches have to file injury report claims with their insurance companies. Many of these claims end up in litigation where the injured party alleges pain and suffering and seeks greater monetary compensation.

What amazes us about these claims is that the majority are slips and falls and altar call accidents. Naturally, most churches respond by calling their insurance company. Yet, what happens if the case is for more than the church's liability coverage?

Here is some insight on how a lawsuit against a church develops. 

When someone consults with a litigating attorney about an injury at your church, the attorney considers if it is a winnable case and whether or not the attorney will see a paycheck for winning. One way the attorney finds that out is by investigating if the church has assets. If the attorney wins the case against a church that does not have assets, it is unlikely the attorney will get paid. Therefore, why would the attorney spend time on such a case?

However, what if your church has assets? Is there a way to protect those assets in instances of litigation? There is, and we will take a look at how you can do that shortly.

(Recommended reading: “Protecting Church Assets From Lawsuits”)

2. Insurance coverage: 

You will probably be surprised by this one. Most churches take comfort that they have liability insurance. In fact, this is probably the church's only real effort in protecting its assets. Yet, for many churches last year, the coverage they thought they had was not really there. 

Of the top reasons why churches end up in court, one of them is the insurance company not covering claims. Hence, you are getting negative treatment from two sides. On one side there is a hostile litigious world, and on the other side is an insurance company selling a 50-page policy that cannot be deciphered by the average person.

Just because you have liability insurance does not mean you are safe. While it is important to have insurance, it is more important to make sure you use a reputable company.

Most churches take comfort that they have liability insurance.

(Recommended reading: “Church Liability Insurance: One Step, Huge Relief”)

3. Church property disputes: 

Church property disputes usually revolve around ownership when a church split occurs or other major decisions by leadership fall out of favor. When these things happen, we are reminded that while planting a church and bringing it to fruition, no one pays a bigger price than the founders. What can your church do to protect its property and assets? Before we answer this, let us look at a case study involving how a church lost its property.

Oldest church in Georgia loses its property

Christ Church, the oldest Episcopal Church in Georgia (founded in 1733) took a stance against the national Episcopal Church when the national church elected its first openly gay bishop. The congregation decided to leave the national church and join the Anglican Church. 

In response, the national Episcopal Church filed a lawsuit for the roughly $3 million dollar building and property the church had used since 1733. The Georgia Supreme Court ruled 6 to 1 in favor of the national church and forced the leaving congregation to give up 100% of its assets. (See Rector v. Bishop of the Episcopal Diocese of Ga., Inc., 290 Ga. 95, 718 S.E.2d 237 (2011))

While this case set a precedent for property rights of congregations that are part of denominations, it also provided us with insight as to the best structure for ownership of the church's cash, vehicles, equipment, and real estate: the holdings corporation. 

An easy solution for every church to protect its assets

A holdings corporation is a separate corporation created by the church with the purpose of holding the church's assets. The corporation is formed under section 501(c)(2) of the IRS nonprofit code. The church is the parent organization because it is the sole member of the holdings corporation.

A holdings corporation is a separate entity created by the church with the purpose of holding the church's assets.

Here is where the power of the holdings corporation rests: 

• The church does not own the holdings corporation, but rather the church is its sole member. The church’s membership can never be revoked, terminated, or suspended for any reason. 
• If the church ever gets sued, the holdings corporation cannot be sued because it is a separate organization. 
• If the church ever loses a lawsuit, its assets are safe because it cannot lose what it does not own. All of its assets are tucked away in the holdings corporation. 

Take note that for real property, it is important to investigate any potential impact to property tax exemptions before transferring these assets over to a holdings corporation. You may want to reach out to your state or county tax assessor’s office, and confirm there is not an issue with making this strategic move. In instances where you run into problems, you may find an appeals process to plead your case and turn an initial denial into an approval. 

If the church ever gets sued, the holdings corporation cannot be sued because it is a separate organization.

If you want to know whether your church is eligible for a property tax exemption, give us a call at 877-494-4655, and one of our team members will be happy to help.

(Recommended reading: “How to Lower Your Rent”)

What if the holdings corporation attempts to go rogue?

We often get asked, "If the church does not own the holdings corporation, what would happen if it went rogue; would the church lose its assets?" 

Of course, the answer is, "No." 

However, that is only if the relationship is properly set up, and the holdings corporation is a sole membership corporation. The sole member has the power to appoint and remove the board of directors at any time with or without cause. This keeps the holdings corporation with a singular purpose.

Who has your blind side?

The best quarterbacks in the country become the finest because they have unbelievable athletes protecting their blind side. When that protection breaks down, or that player gets injured, you will see a decline in the effectiveness of the quarterback. 

Similarly, that blind side for churches gets bigger as the laws of our country become more hostile. Who is covering your blind side? 

We are here to provide your protection. This is what keeps us up working late many nights. Our team is dedicated to helping protect the lives of pastors and ministry leaders all across this country. We work hard every day to help establish protection strategies for churches and ministries. 

If you are interested in more information to start your holdings corporation, click on the link below, or call us at 877-494-4655! Allow us to begin covering your blind side today!

Handpicked articles for you:

• “Can Our Church Own a Business?”
• “Two Clauses in Your Bylaws That Can Save You and Your Ministry”
• “The Dangers of Leasing Your Facilities to Another Church”

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