Pre-judgment and asset protection planning

In these trying financial times, many clients are calling Shenwick & Associates and asking about pre-judgment or asset protection planning. While it is always best to do asset protection planning or pre-judgment planning as far in advance as possible, many clients are concerned about planning opportunities after they have been served with a summons and complaint or in cases where a judgment is soon to be entered. Again, it must be emphasized that pre-judgment planning should be done years in advance of a lawsuit or entry of a judgment.

However, New York law does allow for some planning opportunities:

1. The New York State Debtor and Creditor Law provides for a $150,000 homestead exemption (in Kings, Queens, New York, Bronx, Richmond, Nassau, Suffolk, Rockland, Westchester and Putnam counties). This allows a debtor who owns real estate to retain up to $150,000 in equity if his or her primary residence is foreclosed upon after payment of mortgages on the property. If the debtor is married, then the debtor’s partner (if he or she also holds title to the property) would also receive a $150,000 homestead exemption, for a total of $300,000.

2. If a couple is in fact married, and they are contemplating a divorce, a debtor may be able to transfer non-exempt property to his or his spouse pursuant to New York State’s equitable distribution law. The granting of the divorce would be deemed consideration for the transfer of the property from both spouses to one spouse pursuant to a New York divorce.

3. Whole life life insurance policies. New York State law provides that the cash surrender value component of whole life life insurance is exempt from the reach of creditors.

4. A motor vehicle is exempt up to the amount of $4,000 in equity.

5. A debtor may want to consider purchasing an annuity. A debtor is allowed to purchase a $5,000 annuity within six months of an action, and an unlimited amount if the court determines that that amount is necessary for the reasonable requirements of the debtor and the debtor’s dependent family. Accordingly, if a debtor is a senior citizen and/or is married and supporting minor children, exemption of an annuity greater than $5,000 may be upheld by a court.

6. Finally, qualified retirement plans (401(k)s, pensions, Roth IRAs, IRAs, 457(b) plans for government employees and Simplified Employee Pension Plans (SEPs)) are all deemed spendthrift trusts under New York law. Accordingly, if a debtor has an existing qualified retirement plan and a history of making payments to that plan, they may want to consider continuing to fund that plan. Pre-judgment planning is a complicated area of the law, and is heavily dependent on the facts and circumstances of each individual case. Individuals who feel that they may be in need of pre-judgment planning are encourage to contact Shenwick & Associates.