Asset protection is a set of legal techniques and a body of statutory and common law, dealing with protecting assets of individuals and business entities from civil money judgments. The goal of all asset protection planning is to insulate assets from claims of creditors without concealment or tax evasion.
Asset protection consists of methods available to protect assets from liabilities arising elsewhere.
Assets that are shielded from creditors by law are few. Assets that are almost always unreachable are those to which one does not hold legal title. In many cases, it is possible to vest legal title to personal assets in a trust, an agent or a nominee while retaining all the control of the assets.
The goal of asset protection is similar to bankruptcy, and the two practice areas go hand-in-hand. When a debtor has none to few assets, the bankruptcy route is preferable. When the debtor has significant assets, asset protection may be the solution.
The four threshold factors that are either expressly or implicitly analyzed in each asset protection case are:
The identity of the person engaging in asset protection planning
– If the debtor is an individual, does he or she have a spouse, and is the spouse also liable/exposed?
-If the spouse is not liable it may be possible to enter into an agreement transferring assets o that spouse?
– Are the spouses engaged in activities that are equally likely to result in lawsuits or are one spouse more likely to be sued than the other?
– If the debtor is an entity, did an individual guarantee the entity’s debt?
-How likely is it that the creditor will be able to pierce the corporate veil or otherwise get the assets of the individual owners?
Is there a statute that renders the individual personally liable for the obligations of the entity?
The nature of the claim
– Are there specific claims or the asset protection is taken as a result of a desire to insulate from lawsuits?
– If the claim has been reduced to a judgement, what assets does the judgement encumber?
– What is the statute of limitations for bringing the claim?
The identity of the creditor
– How aggressive is the creditor?
– Is the creditor a government agency? Taxing authority? Some government agencies possess powers of seizure that other government agencies do not.
The nature of the assets
– To what extent are the assets exempt from the claims of the creditors? Whilst the aforementioned use of Trusts will be of benefit in a number of cases the question of ownership can still arise, as although legal ownership may have been transferred to the trustees, beneficial ownership may still in many cases lie with the settler of the Trust.