Asset Protection

1  Choice of Entity
Consideration in entity selection:
2  Developing the Plan
You should begin to develop your plan well before any creditors begin to pursue you. You need to basically run ...
3  Segregation of Business Assets
This is the concept of allocating out different assets into separate entities on a risk vs non-risk basis.
4  Creditors
Current creditors: If the debt has been contracted or the liability has been incurred. Such as using of a credit ...
5  Fraudulent Conveyances
This generally occurs when a debtor gives away assets for free or below market value, generally to friends and/or relatives, ...
6  Charging Order Protections
Charging order protections are some of the most important but least understood business organization law features of LLCs under all ...
7  Relevant Cases
Here is our library (brief and to the point) regarding case law that has impacted asset protection.
8  Piercing the Veil/Alter Ego
The law views the corporation as a separate "person" with a life of its own and with perpetual existence until ...

The Asset Protection Tutorial

The goal of the following tutorial is to allow you to gain an understanding of what asset protection is. The reason we want to share our knowledge is so we know that the best clients are the most educated clients. So please take the time to enjoy the following tutorial and if you have any questions, comments, or want to contact us please follow the contact field or request a membership to our site so that you can post on our community forum and create a company profile to share what your business does with our community.


Why Asset Protection

Asset protection has become a topic of great interest to professionals, executives, business owners, and real estate developers. A fluctuating economy, in today’s tough credit market, professional malpractice, toxic waste liability and increasing exposure to tort  and contract claims have increased the focus on how to lawfully protect one's assets from creditors. However, asset protection planning is not just for high paid professional executives and the super wealthy.

Today's world is an environment filled with lawsuits, taxes, accidents and financial risks that can easily wipe out anyone's assets, it is the sniper in the woods. No matter how safe you feel, you can never be certain that the wealth you have built up over a lifetime won't suddenly be taken from you tomorrow. Whatever your occupation or lifestyle, we all are close to financial disaster and potential liability.

There are a number of reasons for asset protection:


  1. There  is a litigation explosion in the United States. It is estimated  that a new lawsuit is filed every 2 seconds. 
  2. Many Americans avoid jury duty because of the time required and the low economic reimbursement for jury service. This often results in a non­ representative jury unfamiliar with sophisticated legal arguments and outrageous decisions and awards based on emotion.
  3. Insurance coverage is frequently inadequate. In many cases, the coverage amounts are so low that insurance companies will post the coverage and offer little effective defense. Further if the claim is large the insurance company will deny the claim or the insured did not adequately disclose the risk on the forms.
  4. There are many individuals who make it a career to file frivolous lawsuits knowing the tremendous expense of responding to even be most baseless legal action.
  5. There is a lot of failure in this country in search of blame. This results in a deep  pocket mentality. Many individuals and companies are faced with frivolous lawsuits merely because they have exposed assets 
  6. Even if you win a lawsuit, the winner still normally pays their own legal costs and fees. The legal system is often slow, ineffective and expensive. Even small nuisance lawsuits can result in tens of thousands of dollars in legal costs plus hundreds of hours in. personal time.

(1) Environments and situations that may create danger

(1) High risk professions: High risk professions include business owners, doctors, dentists, directors, office s, lawyers, tax practitioners,  real estate  broker, financial  planners, builders, developers, and anyone else who has assets and a license.

(2) Joint accounts: In many states, the creditor of one joint tenant  to a bank account can seize the entire  account balance to satisfy a debt. The  theory is that since the debtor-joint tenant  can  take all the proceeds  from  the  account,  their creditor has similar rights.

(3) Joint tax returns:The filing of a joint income tax return makes both parties jointly and severally liable for any subsequent tax deficiency.

(4) Business failure: The chance of failure within the first five years is substantial

(5) Unexpected medical bills and long-term catastrophic illness; 

(6) Defective partnerships; Partners break up and sue each other

(7) Personal guarantees

(8) Making bad decisions when acting as an officer or director of a corporation;

(9) Non payment of employment taxes;

(10) Employee negligence; car accidents, bad/defective labor/workmanship

(11) Breach of contract; Cases (auto, landlord/tenant)

(12) Disputes with business partners; over how to run the business

(13)  Automobile accidents; personal employees

(14) Libel and slander; 

(15) Divorce;


(2) Sources of lawsuits

While the legal theories behind lawsuits grow increasingly more creative and outrageous, the following is a list of the more common sources of lawsuits:

(1) Errors and omissions;

(2)  Accidents and personal injury;

(3) Contractual  disputes

(4) Wrongful discharge of employees; 

(5) Sexual harassment;

(6) Product liability;

(7)  Spouses, children and pets; (in rentals)

(8) Employees and agents;

(9) Gender, racial and age discrimination;

(10)  Personal guarantees;

(11)  Business combinations and relationships;

(12)  Neighbors; (fighting)

(13)  Environmental and toxic waste liability;

(14)  Unpaid property, income, estate and gift taxes;

(15)  Alimony;

(16)  Child support;

(17)  Marriage and living-together arrangements; and

(18) Misrepresentations.

(3) Types of Liability

Exploding liability:

Best described as that liability that projects outward from the ownership of assets. It does not require any act by the property or business owner. A  tenant  may injure  themselves by falling on  rental property which you may own or if a repair man gets hurt on the rental property. Control  of  this type of liability often  involves the use of title holding entities such as limited partnerships, corporations  and limited liability companies. The theory is to contain  any liability within the entity  and  prevent  the  individual/owner from being personally liable.

Imploding  liability:

Generally requires  the active participation  of the individual alleged to be liable. Any lawsuit that is inward (i.e., imploding) at the individual regardless  of whatever  entities  he or she  uses to hold their  assets or  operate the business (owner smashes his car into a line of school children).  Thus, anything owned or controlled by that individual is at risk.

(4) Basic protection concepts

(1) Insurance:

Insurance  achieves asset protection by sharing risk with other  parties and  risk  management.  However, coverage  and  availability vary  and  one must be sure  that policies purchased cover the risks which you wish to protect yourself against.

(2) Asset placement:

Asset placement involves gifts and transfers to other persons and entities. Gifts  can  be  made  to spouses,  family members  and  charities.  Legal entities such as LLCs, Corporations  and trusts can be used to hold title to assets or operate a business. Such entities are often stacked or tiered creating a layer­ ing effect. In  some  cases, assets are  even  transferred  outside  the  United States.

(3) Statutory protections:

As a matter of public policy the  federal  government and  the states provided a number  of statutory protections. Certain  assets are exempt from creditors both in and out of  bankruptcy. Homesteads  are available in most states.  Almost all retirement  plans are exempt from attachment  by creditors.