How to Protect Your Money, Even If You're Not Rich

Rosemary Carlson  Sun, March 12, 2023

Asset protection planning is the process of building barriers around your assets, whether those assets are personal or business, to keep them safe from litigation, creditor claims, seizure and burdensome taxes. It's a vital and completely legal component of both financial planning and estate planning. There are a number of key tools you can utilize to accomplish the goal of protecting your assets. A financial advisor can help you structure and organize your assets so that they are more likely to achieve your financial goals.

What Is Asset Protection Planning?

Contrary to what many people think, asset protection planning is not just for the wealthy. The estates of anyone, in any income group, can be sued or suffer from hefty taxation. These strategies can mitigate the effect of creditor claims and other issues on your wealth.

If you want and need to protect your assets, you have to be proactive. It's too late to employ asset protection strategies after a child is hurt on your property and the child's parents sue you or you are at fault in a serious car accident. You want to set up an asset protection plan before any of these things happen to you.

While many people can benefit from setting up an asset protection plan, not everyone can. If you have a lot of debt and few assets and you are subject to a lawsuit, it may be better to take bankruptcy than set up an asset protection plan. That's because it's only worth it if you have significant assets, though some events cannot be protected against. These include tax liens, mechanics liens, alimony judgments and child support claims.

Who Should Have an Asset Protection Plan?

Anyone can put an asset protection plan into place. A plan benefits the following people the most:

While even those with a modest net worth should at least consider asset protection, it's especially important for anyone with a significant amount of assets.

Anyone with a significant, recurring amount of credit card debt.

Homeowners who are underwater on their mortgage. In other words, if your mortgage balance is greater than the value of your home, you need to consider an asset protection plan.

Anyone whose profession carries with it a high probability of liability. Doctors and lawyers are some common examples.

Some assets are not at the mercy of your creditors, such as retirement accounts under the protection of the Employee Retirement Income Security Act of 1974 (ERISA). You may also legally preserve at least a portion of your home equity. Homes may be put in another individual's name. Bank accounts can be transferred to offshore banks to preserve their value.

How Does an Asset Protection Plan Work?

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