Imagine losing everything you own from your house to your savings within a few days or months. This could happen if a creditor, former spouse, employee, etc., successfully sues you.
You could face a lawsuit because of negligence, contractual disputes, vehicular accidents, family disputes, inability to meet financial obligations, partner disputes, professional malpractice, employee harassment, etc.
The only way to stop anyone from legally seizing your individual or business asset is to secure them from court rulings.
What does asset protection mean? Asset protection involves using legal strategies to protect your valuable assets from seizure, taxation, divorce, lawsuits, civil money judgments, or other losses. It is an important part of financial planning used by businesses and individuals to guard their wealth without getting involved in tax evasion or perjury.
Now that you have the quick answer to “what is asset protection,” read on and I’ll answer some of the key questions you might have about this topic.
What does asset protection do?
The key thing asset protection does is that it gives you a legal way to protect your personal and business assets from creditors should you face a lawsuit.
With asset protection, individuals or businesses don’t have to engage in illegal activities like hiding assets (concealment), fraudulent transfer, bankruptcy fraud, and tax evasion, to safeguard their valuable assets.
Asset protection also ensures you’re not an easy mark for those targeting your assets. For example, if a creditor or former spouse knows you have protected your assets, it may deter them from suing you because they know they can’t put a claim on your investments, property, bank account, etc.
Also, the first thing a lawyer does when looking to file a claim is to search public records to see what assets you own. If they can’t find any because they are held jointly with family members, for example, they’re unlikely to take up the case.
When is the right time to initiate asset protection?
If you’re likely to be sued and you have lots of assets, you should be proactive and establish asset protection now if you haven’t already done so. At Gallagher Krich, APC, we believe asset protection should be set up before a liability or claim arises because doing so when creditors are already looking to seize your assets is too late and unlikely to provide you with any worthwhile asset protection. From our experience, the longer you have asset protection, the safer your assets are.
If you’re a debtor with few assets, filing for bankruptcy could be a better legal route to take than setting up an asset protection plan. Also, if the only assets you have are your retirement plans you don’t have to set up asset protection as this cannot be used to pay a debt or claim under the Employee Retirement Income Security Act of 1974 (ERISA) and the United States federal bankruptcy law.
What is the best asset protection?
There are several asset protection strategies, however, the most common are:
Family Limited Partnerships (FLP)
This happens when you have assets jointly owned by family members under a business name. Because the assets are not in your name and are owned by several individuals, they cannot be seized even if you lose a lawsuit.
Asset Protection Trust (APT)
This is one of the best ways you can protect your assets from judgments made against your estate, creditors, lawsuits, etc. It involves creating a trust to hold your assets. When you create a trust, the assets you own will no longer be in your name and will be under the authority of a trustee.
An APT can be domestic or foreign. Currently, only 17 US States including Alaska, Ohio, Rhode Island, Virginia, and Utah can allow you to set up a domestic asset protection trust. As the name suggests, a foreign asset protection trust is established outside of the US jurisdictions like the British Virgin Islands and the Cook Islands, which are known offshore tax-havens.
The key difference between a domestic and foreign asset protection trust is a domestic ATP may be at risk of federal bankruptcy laws, court orders, state laws because the assets still reside within the US court’s jurisdiction. A foreign asset protection trust will cost you more to create, but it will provide you with more protection of your assets because offshore tax havens rarely enforce US court orders against assets held in trusts in their jurisdictions.
Learn more about how our San Diego attorneys can help you with setting up a trust as part of your estate plan.
Use of a Limited Liability Company (LLC)
This is the easiest asset protection strategy. A limited liability company separates your individual and business assets, therefore protecting your personal assets from seizure should a lawsuit be filed against you for failing to honor a business loan.
Transferring your assets
To protect your assets from creditor claims, you could transfer them to a spouse, child, relative, or trusted friend. The person you transfer the asset to should be unlikely to have a lawsuit filed against them.
This strategy is, however, risky because if you disagree with the person you transfer the property to, for example, because of a divorce, you could end up losing the assets you’re trying to protect because they don’t legally belong to you.
Let Gallagher Krich Help You Protect Your Assets
If you know or think you’re likely to be sued, call Gallagher Krich, APC, now to let our attorneys help you establish an asset protection plan. Our attorneys have years of experience in asset protection, so we can work with you to secure your real property, savings, investments, wealth accumulated over a lifetime, and even your future income.
When you get in touch, we will assess your financial situation, assets, and risks to come up with the best asset protection plan for you. Working with an attorney from Gallagher Krich, APC, the asset protection plan we set up will make it impossible for creditors, former spouses, or court judgments to take your assets.
Call us at (858) 926-5797 or contact us online today to schedule a free consultation with an experienced asset protection attorney.
