NUTS & BOLTS
ASSET PROTECTION
complex, but the core principle is this: The creditor can’t take what the debtor doesn’t own. Thus, the central strategy of asset protection is to structure your affairs in such a way that you get the benefits of owning your assets without actually being the legal owner. But before we protect your assets, you need to understand how you could possibly lose them… HOWYOUR ASSETS COULD BE TAKEN Imagine it’s you instead of John who has a child or spouse in a traffic accident while driving your car. Your family member is judged to be highly negligent, and the severity of the accident leads to a huge lawsuit against the family member and, by extension, against you. Unfortunately, you lose that lawsuit and are obligated to pay the other party $5 million. Interestingly, the simple act of losing a $5 million lawsuit does not mean that you have yet lost any assets outside of the legal expenses of fighting the lawsuit. If the winner of the lawsuit wants to get any benefit out of the judgment, they will have to use debtor/creditor law to exert the authority necessary to take your assets. As a result, they might file the paperwork necessary to drain your bank account of cash, place a lien against your home or take own- ership of your vehicles, or even attempt to drain your retirement savings. By and large, anything you own is at risk in such a situation. Some of your assets may face greater risk of confiscation than others. For example, the lawmakes it more difficult for a creditor to drain your retirement savings than to drain a checking account. But most assets are not subject to such favored treatment, and no assets have absolute protection. Ultimately, the risk that any particular asset of yours is confiscat- ed by a creditor is determined by two things: 1 The “structure” of your ownership of that asset 2 The debtor/creditor law that governs your circumstances. That, then, is the goal of asset protection: To anticipate the legal risks one might face in advance – even if by accident rather than negligence – and to minimize or eliminate those risks, even if you are subject to a legal judgment. THE BASIC TOOLS OF ASSET PROTECTION The most common tools used by asset protection attorneys are legal entities such as corporations, partnerships and limited liability companies (LLC). Each of these types of entities have different purposes, tax rules and debtor/creditor rules, but one thing that is common to them all is this: Used properly, these entities are viewed as separate legal “persons” under the law. Separate legal “personhood” is very important for asset protec- tion. This makes it possible for you and any entities you own to have
The Legal Kryptonite You Need to Fight Financial Vampires REAL ESTATE ASSET PROTECTION STRATEGIES CAN PROTECT YOU IN OTHER AREAS.
American public who will seize upon any opportunity, no matter how frivolous, to use the legal system to take away the assets of anyone they feel to be a suitable target. As a real estate investor, you’re a prime target for such financial terrorism. Along with mundane risks like fender benders, you also face the risk of legal action from tenants, contractors, and anyone else who happens to set foot on your property. That’s why asset protection has taken center stage as a concern for serious real estate investors. WHAT IS ASSET PROTECTION? “Asset protection” refers to a collection of laws, strategies and practices that make it harder for anyone to take away the things you own. Whether your home, your financial accounts, your re- tirement savings, your business or any other type of asset, a good asset protection plan can serve as a major stumbling block to financial vampires who would prefer to take what’s yours rather than earn their own. Attorneys who provide guidance on asset protection are experts in a branch of law called debtor/creditor law. This type of law gives guidance on the circumstances under which a person who holds an obligation (a creditor) can take away the assets of a person who is subject to an obligation (a debtor). Asset protection strategies can range from very simple to incredibly
by Bryan Ellis
H
e must have been sweating bullets when he got the news. John, a successful business man and owner of several car dealerships, got the call that his 16-year-old son had just rear-ended my car. Naturally, John’s first concern was the safety of his son. After learning that his son was healthy and unharmed, his next thought doubtlessly went to the real risk that I would sue him and place his business, his assets and his family’s financial security at risk. I’m not going to do that. John’s son made an honest mistake, and everything is being taken care of. Sadly, filing a lawsuit resulting from a simple fender-bender would be entirely consis- tent with the “victim mentality” adopted by a large swath of the
ASSET PROTECTION: A collection of laws, strategies, and practices that make it difficult for one party to abuse the legal system to take things from another party.
DEBTOR/CREDIT LAW: The branch of law dealing with asset protection.
100 | think realty magazine :: april 2018
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