Skip to content

When Is Too Late?

Asset Protection: When Is Too Late?

The real estate bust and economic downturn have spurred an enormous interest in asset protection planning. Unfortunately, for many people their interest in asset protection is simply too late.

The primary problem is the existence of fraudulent transfer laws that will nullify gifts and transactions that are meant to put assets out of the reach of creditors, and fraudulent conversion laws that limit a debtor’s attempts to put their money into exempt assets.

The Statute of Limitations for for fraudulent transfers and conversions is usually around four years, although each state will have its own variations. This means that any transfer or conversion that was made within the last four years might be targeted by a creditor to be set aside. So, if you are in financial trouble now and just starting to think about asset protection, you are probably too late. Way too late.

The fraudulent transfer and fraudulent conversion laws do not look at lawsuits or judgments, but instead look at when a “claim” arose. A “claim” is a circumstance or event that could give rise to liability. So, if you suspect that you might be sued for something, but you have not yet been sued or even received a demand letter from the plaintiff’s attorney, you might still be too late to do asset protection planning if the “claim” has already arisen.

Similarly, you may be DOA if you have personal guarantees. Basically, a personal guarantee is your pledge and commitment to back your obligations with the totality of your non-exempt worldy assets. If you have a personal guarantee and you attempt to protect your assets from the guarantee, the courts will basically view it as an attempt to take your chips off the table after you lost the hand, and will not be sympathetic.

To be effective, asset protection should be done before you get into financial trouble and especially before you enter into any personal guarantees. After those things occur, then you need other debtor planning or pre-bankruptcy planning but not asset protection planning.

If you engage in asset protection planning after a significant claim arises or after you have become illiquid, then not only will any transfers that you make be at risk of later being deemed to be fraudulent transfers, but you also may risk a denial of discharge if you later find yourself bankruptcy, voluntary or involuntary. Asset protection planning is not a game, and there can be serious consequences if you get it wrong after a claim has arisen.

One thing is certain if you are in trouble or financially slipping, the more quickly that you speak with an experienced creditor-debtor or bankruptcy attorney in your state, the better off you will be. In addition to bankruptcy counsel, some attorneys specialize in non-bankruptcy “workouts” with creditors and “wind-downs” of distressed businesses.

The lesson is that if you want to engage in asset protection planning, you need to do so before you have any problems. For if you wait until you have problems, it will probably be too late. You can’t wait until you get the flu to be immunized, and you can’t wait until creditors are banging on the door to start asset protection planning.

No comments yet

Leave a Reply

Note: XHTML is allowed. Your email address will never be published.

Subscribe to this comment feed via RSS

*