Before we discuss when you should not do asset protection, we should examine when asset protection planning is safe. As long as the asset protection does not involve fraud or blatant illegal acts it is safest to do asset protection while the creditor seas are calm and the debtor is solvent. In doing so, even a flawed asset protection program may have a fighting chance of holding up when challenged. Remember, however, that solid asset protection has a much higher chance of surviving scrutiny than flawed planning.
Once a creditor threat has arisen, asset protection may still be done, although our available options are now somewhat diminished. Nonetheless, the U.S. Supreme Court case Grupo Mexican v. Alliance Bond Fund states, "[we] follow the well-established general rule that a judgment establishing the debt was necessary before a court of equity would interfere with the debtor's use of the property." Another court even noted that an attorney who represents a client under creditor attack should "protect [the client] from the claims of creditors, to the fullest permissible extent." This obviously gives us some wiggle room, and we believe an attorney has an obligation to recommend asset protection for his client in certain situations; however, the key phrase is that we must do our planning "to the fullest permissible extent". This means planning while under creditor duress should only be done while fully considering the UFTA. Furthermore, there are several pitfalls that should be avoided at all costs.
This brings us finally to circumstances where asset protection should not be done. Planning done in these instances can not only cause a program to fail, but could result in additional fines and penalties against the debtor, the planner, and possibly professional discipline against the debtor's attorney. Such circumstances can be broken down into four categories, and include; 1) planning against a creditor who has a direct interest in the property; 2) planning against a post-judgment creditor; 3) planning that involves dishonesty, misrepresentation, or committing a fraud against the court; and 4) planning that is a blatant and egregious fraudulent transfer under the UFTA.
A responsible attorney won't get involved in asset protection planning for a client under any of these circumstances.
