Asset Protection

Where the dangers lie

Unexpected liability can come from just about anywhere:

  • The IRS and other tax authorities
  • Accident victims, including victims whose injuries were caused by the actions of minor children or employees
  • Doctors, hospitals, nursing homes, and other health-care providers
  • Credit card companies
  • Business creditors, including employees and former employees, governmental agencies, suppliers, customers, partners, shareholders, and the general public
  • Creditors of other individuals, where you have cosigned or guaranteed obligations for those individuals
  • Marital or other live-in partners

Asset protection techniques

There are three basic asset protection techniques: insurance, statutory protection, and asset placement. None of these techniques is a complete solution by itself but may make sense as one limited component of an asset protection plan.


The simplest way to cope with risk is to shift the risk to an insurance company. This should be your first line of defense. Before you do anything else, review your existing coverage. Then consider purchasing or increasing coverage on your insurance policies as appropriate. You should be adequately insured against:

  • Death and disability
  • Medical risk, including long-term care
  • Liability and property loss (both personal and business)
  • Other business losses

Statutory protection

Creditors can't enforce a lien or judgment against property that is exempt under federal or state law. While exemption planning can't offer total protection, it can offer some shelter for certain assets.

Both federal and state laws govern whether property is exempt or nonexempt in non-bankruptcy proceedings (separate federal and state laws govern whether property is exempt or nonexempt in bankruptcy proceedings). Generally, you can choose whether the federal exemption or the state exemption applies. When looking at exemption laws, be sure to find out how much of an exemption is allowed for a particular type of property--it may be completely exempt or exempt only up to a certain amount or restricted in some way. Types of property often receiving an exemption include:

  • Homestead (principal residence)
  • Personal property
  • Motor vehicle
  • IRAs, pension plans, and Keogh plans
  • Prepaid college tuition plans
  • Life insurance benefits and cash value
  • Proceeds of life insurance
  • Proceeds of annuities
  • Wages

In those jurisdictions that recognize ownership by tenancy by the entirety (TBE), creditors of the husband or creditors of the wife cannot reach TBE assets.

Asset placement

Asset placement refers to transferring legal ownership of assets to other persons or entities, such as corporations, limited partnerships, and trusts. The basis for this technique is simple--creditors can't reach property that you do not own or control.

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