A variety of steps can be taken to protect assets from creditors. One simple step is to transfer your assets to your spouse. This assumes you have a healthy marriage and that your spouse's creditors are not a problem. It may also interfere with planning to avoid estate taxes. Other devices which are sometimes used are:
Statutory exemptions from enforcement of judgements. In most states by statute a creditor cannot reach certain assets. In most states creditors cannot get your residence if the equity in it is below a certain level. In Illinois this is $15,000 for a single person or $30,000 for married persons. In some states the amount of the exemption is unlimited. Under the bankruptcy laws the assets protected by state law are also exempt assets in bankruptcy.
Retirement vehicles. In most states pension, profit sharing, IRAs and other retirement plans are exempt from execution on judgments and in bankruptcy if they are in tax exempt plans and are the debtor's own retirement funds.
Corporations and other limited liability entities. For liabilities incurred by a corporation or other limited liability entity only the assets of the entity are at risk, not your other assets outside the entity. This does not work when you do the act creating certain liabilities yourself, such as when you are driving the company truck which runs someone over. It also does not work for certain professionals like doctors or lawyers with respect to their malpractice liability, although more and more states have provided for entities where professionals are liable only for their own malpractice and not the malpractice of their partners or co-owners. The limited liability does work with respect to contract liability, so long as you sign the entity's name and do not personally guaranty the contact. It also does not work against liabilities generated outside the business. For these the creditors can get your interest in the business and then liquidate it.
Limited liability companies and limited partnerships. If you own an interest in such an entity under some states' laws your creditors cannot get your interest in the entity. They can only get a charging order which allows them to get distributions which might otherwise be made to you with respect to the interest if there are any.
Tenancy by the entirety. This is a type of joint tenancy between spouses in a residence. The creditors of only one of the spouses cannot get the property.
Bearer stock. In some countries corporate stock can be issued to a bearer, not to a named person. No records of ownership are kept. If your creditors can't find your assets they can't get them. However, creditors can require you to tell them under oath what you own so use of this device involves potentially breaking the law. You can be sentenced to jail for perjury or contempt of court if your answers are shown to be false.
Foreign assets protection trusts. These are trusts set up, usually, in certain foreign countries where it is difficult to enforce U.S. judgments. In the time it takes the creditor to get anywhere you can move the assets to another country with similar laws. These arrangements are very expensive and at least one U.S. court has ordered the trust owner who lives here to produce the assets or go to jail.
Domestic asset protection trusts. Alaska, Nevada, Delaware and a few other states allow someone to create a trust with his or her own assets for his or her own benefit where a creditor cannot get the assets in the trust. Because of various legal difficulties these are probably not good outside the state that authorizes them.
Spendthrift trusts. Someone can create a trust for the benefit of someone else that provides that creditors of the beneficiary cannot get the trust assets. This is called a spendthrift trust and is upheld in most states. However the creditors of the beneficiaries can get charging orders requiring any distributions form the trust to be paid to them.
Living trusts. After your death your creditors cannot get the trust assets.
Liability insurance. For non-contract liabilities this is the primary asset protection device.
If you are going to use these devices you must do so before you have lawsuits or judgments against you and preferably before you incur debts that you wish to avoid. Transfer of your assets for less than their full value is a fraudulent conveyance and void if you made the transfer to avoid a creditor and the transfer rendered you insolvent. The creditor can get the assets in that case. Some of the above devices also have waiting periods before they take effect. These principles limit asset protection planning to those who are left with enough assets to satisfy all reasonably foreseeable claims. In other words, you have to do it before the claim you fear may arise does arise.
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