Asset Protection

Legal Asset Protection

Some forms of asset protection are not legal (also referred to as fraudulent transfers). Learn more about legal asset protection here.

Legal asset protection is asset protection that stays within the laws by being implemented before the protection is necessary. Legal asset protection can include setting up your business in ways that can limit liability (such as with limited liability corporations), as well as setting up certain types of retirement accounts that aren’t easily accessible by third parties. These methods (as well as other methods) are considered legal only if they are put into action before necessary. If you wait until a lawsuit or until creditors are trying to gain access to your assets, you would be committing a fraudulent transfer by employing these asset protection techniques.

Basically, by using legal asset protection, you are taking precautions (before any lawsuits, etc. ever occur) to safeguard your assets. If you try to protect your assets from people that you legitimately owe money to, you are not staying within the law, and you could face many more fines as well as jail time.

In today’s litigation-happy society, it is necessary for anyone at risk, or anyone with a substantial amount of assets, to employ legal asset protection. But, if you protect those assets in an illegal manner—by committing a fraudulent transaction—you will pay much more than you would have if you had never protected those assets. The following is an example of how this might happen:

Randy Johnson worked his whole life, and made good investment decisions, and saved a lot of money. When he retired from a 30-year career with a railroad company, he decided to open a restaurant. He didn’t think about setting up his business as anything other than a sole-proprietorship, so that’s what he did. A couple of years later, his business was steadily sinking. All the newer, larger chain restaurants that were being built nearby decreased his customer base almost completely. Since Randy didn’t take any precautions by using legal asset protection when he first set his business up, he would be held personally responsible for the company’s debts. At this point, he was left with two choices:

1. He could close the business, losing everything he invested into it, plus have to pay off all creditors out of his personal finances; or

2. He could find a way to protect his assets before the creditors could get to them.

Since he knows his business is about to sink, and he knows he is personally responsible, taking steps to protect his assets at this point would be considered fraudulent. This means that if Randy chooses the second method of dealing with his financial situation, he is taking a very big risk. In this situation, Randy chooses to hide his assets to protect them before his business sinks. He decides to make false gifts to people who will give the money back to him later, and he uses a variety of other methods to keep his assets out of the hands of creditors he owes. Then, once his business sinks, and he is unable to pay them, they will likely employ legal counsel. If it is discovered that Randy hid those assets (committing fraudulent transactions) he would face criminal charges. At this point, he would not only be required to still find a way to pay the creditors, but he may also face additional fines and court and legal fees, he may also be required to go to jail.

If, however, when Randy was faced with the decision above, he had simply chosen to face the creditors and lose many of his assets, he would have actually spent less money and he would not have had to face any kind of criminal charges.

The above story is an example of how staying within the realms of the law when protecting your assets can benefit you greatly. Committing fraudulent transactions to protect your assets may help some people in the short term, but doing so is a very big risk—possibly causing a loss far greater than it would have been originally.

To avoid ever being in the same position as Randy, and to avoid every having to make the decision above, you can legally protect your assets by doing so when you very first start the business. You could protect your assets in a legal manner by setting up your business as a limited liability company, or by using a variety of other means.

As you can see from the above story, the best way to make sure that you legally protect your assets is by protecting your assets in advance. If you don’t use legal asset protection, you could find yourself losing a lot of money and possibly your freedom. To find out more about legal asset protection, you should consult with a qualified and experienced attorney.