Back to basics: How can you protect your assets?
The Asset Protection Attorneys of The Presser Law Firm, P.A. mostly use one of three strategies, or "pillars of protection." The first pillar is to title only exempt assets to your personal name. The simplest way to protect yourself is to personally own only assets with federal or state statutory protection against lawsuits and creditors. These are exempt assets.
Do not own assets in your own name that are not exempt and self-protected
Unprotected assets owned individually are assets your creditors can easily
claim. Our website helps highlight those assets that are most commonly
creditor-sheltered. You usually don't need to do anything more to
protect them. Many people rely strictly on their homestead laws, wage
and pension exemptions, bankruptcy exemptions and other protective federal
and state laws to keep their individually owned assets safe from creditors.
There are four types of assets that are typically exempt:
- Personal residences (a.k.a "homesteads")
- Personal effects (such as furniture and clothing)
- Pensions and retirement funds (IRAs, 401(k)s, annuities, etc.)
- Life insurance
To maximize your protection,convert non-exempt (unprotected assets) into exempt self-protected assets
If you live in a more debtor-friendly state, you have several options.
If you live in a less protective state, you might "jurisdiction shop"
and relocate to a state that's more protective, or you might swap
with a liability-free spouse your interest in unprotected assets for your
spouse's interest in protected marital assets of equal value.
But be careful. Transforming non-exempt assets into exempt assets has its limitations.
In some states, "last minute" conversions are a
fraudulent transfer if you already have a creditor.
How protective are these exemption laws against lawsuits? The answer varies by state. State exemptions can be extremely valuable or relatively meaningless. Exemption law efficacy depends not only upon what liability you need protection against, but also upon your state laws, your assets, and the equity in the asset to be protected.
Protecting yourself with the federal and state exemption laws can seem like a simple exercise, but it's quite tricky. You'll definitely need professional advice here, so you are confident that your state laws will fully protect your assets under your specific circumstances. You may have misconceptions about your exemption laws and assume certain assets are self-protected, but this may not be the case.
A greater difficulty with the exemption laws involves the interplay between the state exemptions and the federal exemptions (those which apply in bankruptcy). Pro-creditor changes in the new bankruptcy code have disadvantaged affluent debtors who will now find their state law exemptions less helpful if they go into bankruptcy. The homestead exemptions are one example. Conversely, the new bankruptcy law better protects certain other assets, most notably retirement accounts.
The Role of Bankruptcy in Asset Protection Planning
The threshold question in exemption planning then is whether you expect to
resolve your legal problems with or without bankruptcy. Only when you have this answer can you determine which exemptions would
apply. Nor can you always avoid bankruptcy. Because the new bankruptcy
law is generally more favorable to creditors, I might expect more creditors
to petition debtors into involuntary bankruptcy, causing these debtors
to lose their more liberal state exemption protection.
A further complication is that not every state lets you apply the federal exemptions in bankruptcy, though most states allow a bankrupt individual to choose between the federal and state exemptions. (When you file bankruptcy you must choose exemptions. You cannot combine federal and state exemptions.) Though you must choose between the federal or state exemptions where you have the option, the exemption laws of certain states allow you to also apply supplemental federal exemptions, which may expand your protection.
You can choose which specific property to exempt within the terms of the exemption system that you elect. If you apply the federal exemptions in bankruptcy, you and your spouse may each claim the full exemption, but you cannot always double your exemptions under state law.
In either case, your strategy is to own as many exempt assets as possible.
The states generally exempt the same assets that the federal system exempts, though their exemption limits vary. You must then answer a number of questions before you design your one best exemption strategy. You may need both an Asset Protection Attorney and a bankruptcy attorney familiar with your state laws.