PROTECTING ASSETS

In this economy, creditor protection is an increasing concern for many individuals. In contrast to prior years, when perhaps real estate developers at times or professionals concerned about malpractice, had creditor protection concerns, today's environment and the economy has affected many more people.

Any creditor protection solution is only possible if there is no "fraudulent conveyance." A fraudulent conveyance is any transfer that renders the debtor insolvent or which is done with the intent to delay, hinder, or defraud a creditor. Assuming no fraudulent conveyance, certain assets may be protected depending on state law or bankruptcy protection. Common examples are the following:

1. Many states protect property that is titled with a spouse "tenants by the entirety." Thus if there is a judgment against one spouse, the property would be protected. An example would be a real estate developer who signed a loan. Upon default, if a creditor sought collection from the developer’s real property and accounts that were titled "tenants by the entirety," those assets would be protected as long as his wife did not sign on the note. If his wife then died and the judgment was outstanding, then the protection is lost.
2. ERISA accounts, such as 401(k) plans, enjoy unlimited protection. IRA's, which are not ERISA plans, enjoy limited protection in many states up to $1 million. The IRA protection of $1 million may depend on whether the debtor is in bankruptcy and the 2005 Bankruptcy Act applying. Although assets rolled over from an ERISA plan to an IRA are also protected, it is important to make sure you do not commingle the two different kinds of accounts.

There are a host of other asset protection solutions ranging from charging order protection afforded partnerships and limited liability companies, to domestic asset protection trusts created in states that have favorable protection laws such as Delaware or Alaska, to offshore planning in Countries with even more favorable laws. However, the bottom line is that, for U.S. residents with U.S. assets, proactive asset protection planning will only work if it predates any fraudulent conveyance problems.