Ten Rules for Asset Protection Planning
Ten Rules for Asset Protection Planning
By Jay Adkisson
Start early, keep it simple, and don’t try to hide stuff from your creditors.
There’s a gambling saying that goes something like, “If you want to be a winner, you have to walk away from the table a winner.” One time-honored method of reaching this result is to systematically take your chips off the table as you win them, so that your potential for losses stays small.
Asset protection planning is all about taking chips off the table in good times, so that you still can walk away from the table a winner no matter what happens in bad times. Those who worry the most about asset protection are those who are the most likely to get sued; think obstetricians and, more recently, real estate investors here. But average folks often get caught up in difficult situations, and thus if you have something to protect then the topic of asset protection should at least cross your mind. ...
Technically, asset protection planning is the debtor’s side of creditor-debtor law. While creditors are concerned about the strategies and techniques of collection, debtors are interested in the strategies and techniques for protecting their most valuable assets from potential creditors.
But in this calculation, it is not just about protecting assets but also about making sure that one does not end up in jail for contempt or bankruptcy fraud for engaging in the process.
Keeping in mind the law school adage that “General rules are generally inapplicable”, the following 10 rules should always be kept in mind when you try to take your chips off the table.
1. Start Planning Before A Claim Arises
Many things you can do will effectively provide asset protection before a claim or liability arises, but few things will afterwards. That’s because what you do after a claim rises could be undone by “fraudulent transfer” law.
Moreover, the point at which a claim arises is earlier than a layman might think—it is, for example, usually much earlier than when a demand letter or a process server shows up at the door.
2. Late Planning Usually Backfires
Asset protection planning after a claim arises is apt to make matters worse; think of it as getting a flu shot while you have the flu, and the shot itself making you even more woozy.
It is a common misconception that the only thing a judge can do is to unwind a fraudulent transfer, leaving a debtor who unsuccessfully tried late planning no worse off than if he had done nothing.
To the contrary, both the debtor and whoever assisted in the fraudulent transfer can become liable for the creditor’s attorney fees, and the debtor can lose the hope of getting a discharge in bankruptcy.
3. Asset Protection Planning Is Not A Substitute For Insurance
Asset protection planning should not be a substitute for liability and professional insurance, but rather should supplement insurance.
It is a myth that asset protection plans invariably scare away plaintiffs, and an asset protection plan doesn’t pay legal fees to defend against a lawsuit.
Insurance also supplements asset protection planning, since it can help a debtor survive a claim a fraudulent transfer claim. If you get sued, let the insurance company pay to defend it and pay to settle it — that’s what you’re paying the premiums for.
4. Personal Assets Are For Trusts; Business Assets Are For Business Entities
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