Asset Protection in the Age of COVID

August 04 15:27 2020

If you feel uncertain due to the current economy, you’re not alone. You wonder if your creditors be able to take your house. And if you own a business, what happens when many months of rent is all due at once?

There are ways to protect yourself from lawsuits and creditors. The general rule in asset protection is ‘What you own can be taken from you.’ To solve this, asset protection attorneys transfer your assets outside of your name. Your assets will go into a specialized trust or other entity. That way, you may have some level of control. But you will not have legal title. In this way, your creditors will not be able to take your assets from you.

But it’s more challenging to start the process now. The reason is that transferring an asset at this point is more likely to be a fraudulent transfer.

Each state has its own laws about when a court can set aside a transaction when a person is insolvent or bankrupt. Some state statutes also make it a crime to engage in a fraudulent transfer. (Arizona is one such state.) Plus, engaging in fraudulent transfers can disqualify yourself from bankruptcy relief. That could be bad news. You would be forever in debt until you paid it off or die.

It is easy to completely avoid and prevent an attack based on a fraudulent transfer theory. To do that, you transfer your assets to your asset protection trust in advance of a lawsuit or bankruptcy. The test is whether a prudent person in your situation would have known that there was an outstanding claim or debt.

Here’s an actual example. In the court case of In the Matter of Damrow, the Nebraska bankruptcy court examined two separate transfers by the same person. The court found that one of them constituted a fraudulent transfer, and the other did not. When Mr. Damrow made the first transfer, he had guaranteed significant loans to several lenders. But, he was not behind on payments at the time. When he made the second transfer, Mr. Damrow was behind on payments. Also, several creditors had initiated collection activities by this time. The court found that the second transfer was fraudulent (and could be unwound). The reason was that Mr. Damrow was insolvent when he made it.

It is important not to transfer assets with actual intent to hinder, delay, or defraud a creditor. You also should not transfer at a time that appears to be a fraudulent transfer. If you do, a court can bring the assets back to pay your creditors.

Regardless of how dire you believe your situation is, you probably still have options. Talk to an attorney and do not rely on what you read on the Internet. Your situation is unique. And most Internet articles (as well as this article) are general in nature.

Written by Paul E. Deloughery, an attorney in Arizona who helps people throughout the U.S.

Magellan Law, PLC protects people from lawsuits and creditors using proven legal strategies. You can book a call to speak with Mr. Deloughery here.

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