Asset protection is a part of financial planning that aims to protect one’s assets from creditor claims. One way individuals and business entities use asset protection techniques, while operating within the bounds set by debtor-creditor law, can be seen in how they limit creditors’ access to certain valuable items during hard times when money becomes tight for any reason.
Asset protection can be understood as guarding your wealth and is an integral part of financial planning. There are many different techniques that people use for asset protection. These techniques can be used by anyone who seeks protection from creditor claims on their assets while operating within limits set under debtor-creditor law.
Asset protection safeguards assets in a lawful way without partaking in unlawful acts of concealment (hiding assets), fraudulent transfer (as per the 1984 Uniform Fraudulent Transfer Act), contempt, bankruptcy fraud or tax evasion.
Experts tell us that effective asset protection starts before a claim or liability happens since initiating any advantageous protection after that is generally past the point of no return. A few standard techniques for asset protection comprise asset protection trusts, accounts-receivable financing and family limited partnerships (FLP).
Supposing a borrower does not have many assets, bankruptcy might be viewed as the more acceptable approach contrasted with laying out a plan for asset protection. Assuming huge assets are involved, in any case, proactive asset protection is usually encouraged.
Certain assets, for example, retirement plans, are excluded from lenders under the United States federal bankruptcy and the Employee Retirement Income Security Act of 1974 (ERISA) laws. What’s more, many states permit exceptions for a specified amount of home equity in a primary residence and other personal property like clothing and apparel.
Note to remember: Each state in the United States has laws and regulations to safeguard owners of corporations, companies, limited liability corporations (LLCs), and limited partnerships (LPs) from the entity’s liabilities.
Real estate
Jointly-held property that comes under the coverage of tenants in its entirety can work as a type of asset protection. Married couples who hold a shared interest in the property under tenants by entirety share a claim to an entire piece of property and not sub-sections of it.
The combined ownership of property implies that lenders with liens and different claims against one spouse can’t connect the property for their debt reclamation efforts. Assuming a creditor has claims against both life partners, the tenants by entirety stipulations wouldn’t protect the asset from being sought after by that lender.
Some may seek asset protection by putting the property or financial asset in the name of a relative or any other trusted associate. For instance, the main successor may be gifted ownership of the property. At the same time, the actual owner lives on the property or utilizes it. This could confuse and complicate efforts to seize property as actual ownership should be determined. Financial records may also be domiciled in offshore banks to avoid legally paying taxes against those funds.
