Protecting Your Assets from Creditors & Predators

I recently submitted this article to a dozen or so medical journals for publications. Although it is directed toward medical professionals, its concepts are appropriate for any person concerned about protecting their assets.



"Medical professionals alike, especially the high-income earners, are constantly concerned over being sued. In a world of constant litigation, the all look for strategies and methods to protect the assets they accumulate through their work: their home, investments, real estate, etc…

The topic of asset protection is always being written about. Some practitioners swear by methods of “bullet-proofing” your assets. Others claim that asset protection doesn’t really work. This article has been written to explore both extremes of this industry and to find a common ground of reasonable security for the medical professional who would like to take adequate steps to protect their assets without injecting too much complication into the way they manage their affairs.

First of all, can you “bullet-proof” your assets? If you perform a Google search for “asset protection” or “bullet proofing your assets”, you will uncover may sites which profess that with the right structure in place, and having done so with no potential law suits on the horizon, you can successfully protect your assets. The Asset Protection Consulting Group, http://www.apcg.com/, writes about asset protection and uses the O.J. Simpson case as an example:

“Essentially asset protection is a legal way to put your assets beyond the reach of those who would like to take them from you by filing a lawsuit. Here is an example you are likely familiar with that demonstrates its effectiveness and legality.

Remember the O.J. Simpson case? O.J. went to trial in 1995 and was acquitted of murder charges. His story is a perfect example of how and why asset protection works. Now there’s a whole criminal side to O.J.’s case. So let’s put aside the moral issues surrounding O.J. We’re just talking about asset protection here. The point here is that the nation was able to see for the first time how an alleged murderer was able to have a judgment entered against him and no one was able to collect any money. So let’s outline what happened here. By the way, do you know how O.J.’s doing now? Do you have any doubts he’s living all right?

What happened after he was acquitted from the criminal charges? The Goldmans sued him on a wrongful death case in civil court and obtained a judgment for $33.5 million. Yet have they collected anything? All they got was his Heisman trophy. The piano he said belonged to his mother. But what happened to his money? Well he was lucky. O.J. had pensions, or retirement plans through the NFL and the Screen Actor’s Guild (SAG), and both pensions were exempt from judgments by law in California.

What about his house? He had a nice home near Beverly Hills. What happened there? The house was worth $3.5 million. He had a first mortgage for $1.5 million. The question everyone asked was what happened to the rest of the equity? Why didn’t they take it? Well, he had what are called equity stripping mortgage liens placed on it. By the time they got to the house all the equity was encumbered in favor of his attorneys. His home was leveraged to the hilt so by the time the Goldmans got to it there was nothing left for them to take.

Other groups ward against these techniques and quote various court cases and legal decisions that demonstrate their point. Almost all reported cases are those whereby the debtors had transferred or attempted to transfer their assets into an asset protection structure once litigation or potential litigation is on the horizon. Of course, the logical course of events are such that with arrangements that work, litigants will settle and often for pennies on the dollar.

This article is about creating structures that add “layers” to your assets, making it more difficult and costly for litigants and creditors to attach them with a judgment from a court of competent jurisdiction. By creating entities such as corporations and limited liability companies in different states and even foreign jurisdictions, it becomes difficult for a judgment creditor to attach assets since judgments cannot be obtained and enforced within statute of limitation time limits. Also, suing and enforcing judgments in multiple jurisdictions becomes very costly to do so. Remember however, your “structure” must have a legitimate business purpose beyond just that of avoiding creditors.

Here’s an example:

Dr. J establishes a Delaware “Series” Limited Liability Company. This type of entity allows you to segregate assets, for liability purposes, from each other within the same entity. The sole member of the LLC is a Nevada Corporation which is filed blindly as allowed under Nevada law using a nominee appointed for such purpose. Therefore, Dr. J’s information remains out of the public record. All stock in the Nevada Corporation (which can be issued as “bearer” certificates) is owned by another limited liability company created in the jurisdiction of Nevis, in the British Virgin Islands. Created in 1995, Nevis past legislation that allows for the creation of an LLC without public filings and a statute of limitations on judgments of only six months. The Nevis LLC could be owned by an asset protection trust in the Cook Islands located in the Pacific Ocean enroute to Australia.

Now, this is an extreme example and probably includes more “layers” than would be necessary in most situations. Probably a Delaware Series LLC would suffice or a Nevada entity could be used if the professional wishes to file blindly. As an alternate, off-shore jurisdictions could be used where it is suspect as to whether a foreign court would even enforce a US-obtained judgment.

The point in these examples are this: given a complex and costly structure, most litigants will think twice about instituting suit. Generally, a good litigation attorney would first conduct an asset search to determine if the prospective defendant had anything worth pursuing and the suit might end there or insurance settlement offers may be accepted.

There is one important key to creating an effective structure: putting it in place well before any problems arise. So called “rainy day” planning should be completed as soon as possible. Whenever working with new clients, we seek to create an asset protection strategy, as part of the doctor’s estate plan, that contemplates the accumulation of assets over time. In almost all cases where defendants have lost and forfeited assets that they were trying to protect, the persons had transferred assets at a time when the potential litigation had already reared its ugly head. Fraud and fraudulent transfers never work, no matter how complex the structure.

Also, remember this: never use a structure, especially off-shore arrangements, to avoid the payment of federal income taxes. The IRS can always access assets and you can be liable for criminal charges as well."