Asset protection is one of those legal topics that sounds straightforward until you start asking questions. Most people have a rough idea that it involves protecting what they own, but beyond that, the details get murky fast. We work with clients who come to us with assumptions that turn out to be wrong, and sometimes those assumptions have already cost them.
Our friends at NW Legacy Law discuss this regularly with their own clients. An asset protection lawyer does far more than set up a trust or move money around.
This is probably the most common misconception we encounter. Many people assume asset protection planning is only for people with significant wealth. In reality, anyone who owns a home, runs a business, or has retirement savings could benefit from a legal strategy that shields those assets from unexpected claims, creditors, or lawsuits.
If you are a small business owner, a landlord, a medical professional, or even someone with a sizable savings account, your personal assets can be at risk if something goes wrong professionally or personally.
There is a meaningful difference between legal asset protection and fraudulent transfers. Working with an attorney to structure your assets properly is completely lawful. Attempting to hide or move assets after a lawsuit has already been filed is not, and courts take a dim view of it.
Legitimate strategies typically include things like:
These are tools available to anyone. The key is acting before a legal threat materializes, not after.
This is where we see the most preventable damage. Asset protection planning only works when it is done in advance. Fraudulent transfer laws, which exist at both the state and federal levels, allow courts to unwind transactions made with the intent to defraud creditors. Timing matters enormously here.
If you wait until you receive a demand letter or a summons to start thinking about your assets, your options shrink considerably. An experienced asset protection attorney can help you put structures in place while they are still legally sound.
Many clients believe that having a will means their assets are protected. A will is an estate planning document. It determines what happens to your property after you die. It does nothing to protect your assets during your lifetime from lawsuits, creditors, or business liabilities.
Asset protection planning and estate planning often overlap, but they are not the same thing. A proper asset protection strategy may include estate planning components, but it addresses risks you face while you are alive.
Forming an LLC is a smart first step for many business owners, but it is not a complete shield. Courts can and do “pierce the corporate veil” when business owners mix personal and business finances, fail to maintain proper records, or use the entity improperly. According to the IRS, the protections an LLC offers depend significantly on how it is operated, not just that it exists.
An asset protection lawyer will help you understand what maintaining that protection actually requires on a day-to-day basis.
The single biggest mistake people make in this area is waiting. Asset protection planning is most effective when your legal and financial situation is relatively stable. Once a threat appears, your options narrow and the scrutiny on any changes you make increases significantly.
If you have been putting this off, now is a reasonable time to get a legal review of where things stand. Speaking with an asset protection attorney does not obligate you to anything, but it will give you a clearer picture of where you may be exposed and what can be done about it.
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Ms. Katje earned her Juris Doctorate at California Western School of Law, San Diego, California, graduated Cum Laude and was a Dean’s Honor List recipient. She was also a recipient of the American Jurisprudence Award in Contracts I and Contracts II. Ms. Katje was a member of the Law Review and International Law Journal at California Western School Law, where she was an Associate Editor.
