Wednesday, December 02, 2009

Asset Protection

At Shenwick & Associates, we are getting an increasing number of calls about asset protection. Asset protection involves the use of various legal techniques in conjunction with statutory and common law (i.e. debtor and creditor law, trusts and estates law) to protect the assets of individuals and business from civil money judgments. It is better to do asset protection planning sooner, rather then later and prior to lawsuits by creditors.

Asset protection is a complex and evolving area of law, with many potential pitfalls for the unwary. One of the biggest concerns in formulating an asset protection plan is avoiding claims of fraudulent conveyances. A fraudulent conveyance involves the intent to defraud or delay creditors. Factors that may be indicia of a fraudulent conveyance include: (1) lacking the financial means to pay off a debt after the transfer of assets; (2) concealing the ownership or location of assets from creditors; and (3) deliberately placing property in a location beyond the reach of creditors. Claims for fraudulent conveyance can be brought under the Bankruptcy Code or New York State law.

One option to protect assets is to create a Domestic Asset Protection Trust. Delaware law provides that, notwithstanding the fact that a Domestic Asset Protection Trust is self settled (funded by the client), it is still “spendthrift,” which means that under Delaware law, a creditor cannot reach those assets. A Domestic Asset Protection Trust will not protect a client from alimony, maintenance, child support or personal injury claims. Due to its prominence in corporate and business law, Delaware is an ideal jurisdiction for such an entity.

For more information about how to protect your assets from creditors, please contact Jim Shenwick.