WHAT DOES “ASSET PROTECTION” MEAN? It’s about fending off creditors who have a legal claim on your assets. That claim might arise because you took on too much debt or because you ended up on the wrong end of a lawsuit. While these might seem like two quite different problems, in both cases you could end up filing for bankruptcy.
By the time bankruptcy or litigation is threatened, however, there isn’t much you can do. It’s probably too late to rearrange your finances by, say, gifting assets to your children. Such gifts could be deemed a fraudulent transfer. Instead, your best bet is to take steps now, before there’s any hint of a financial claim against you. That’s especially true if you’re in an occupation that tends to attract legal claims, such as working as an accountant, doctor or lawyer. Lawsuits are also a risk if you work in real estate, including as an architect, builder or developer. What to do?
What if you have already been slapped with a lawsuit or you’re considering bankruptcy? You will need to hire a qualified attorney. Ask which assets enjoy creditor protection in your state. It might be ill-advised to move money into these assets now, but you also shouldn’t pull money out. For instance, given the creditor protection enjoyed by retirement accounts, you don’t want to use those accounts to pay legal bills and other expenses. If you fear a lawsuit, you should also immediately contact your insurance company to see if your various policies will provide liability coverage.
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