Collector with hair oil and cologne: “I am here to enforce my judgment against you.”
Retiree in sandals and blue jeans: “All of my assets are protected in a family LLC.”
Collector: “I’ll seize your interest in the LLC. I’ll take all your money.”
Retiree: “Oh no you won’t. It is an asset protection LLC.”
Let’s talk about asset protection.
Asset protection is a legal device to separate you from your assets so that others can’t seize your assets. In order for an asset protection device to work, you need to be unable to reach your assets, which means that others can’t reach your assets, and your assets need to have been placed out of your reach in a manner that does not permit the transfer of your assets beyond your reach to be undone.
A transfer can be undone by a court if the transfer was for the purpose of avoiding payment to creditors, or if the transfer is made for less than fair market value at a time when the transferor is insolvent.
You say, “But isn’t the whole idea to avoid payment to creditors?” We explain, “You have to transfer your assets before you have creditors who are attempting to collect from you. It’s like buying car insurance before you have an accident.”
You then say, “How can the transfer be for fair market value? Won’t I then own something else that my creditors can seize?” We explain, “What you get in return is something of value equal to the value of the assets transferred, but you relinquish control of what you get in return, and you relinquish the right to receive income from or to retrieve the transferred assets.”
“This sounds complicated,” you say. “Yes,” we admit, “it is.” “Does it really work?” you ask. “Yes, it does,” we say. “Wow,” you say, “you lawyers are sneaky.” “Aw, shucks,” we say, blushing.
This article is intended only to give a general overview of asset protection. It is not intended as legal advice. For legal advice please consult your attorney.