With the U.S. economy in distress and property foreclosures at all time highs, lately asset protection has become a hot topic. But what exactly is it, and what steps can you take to protect your assets?
Definition of Asset Protection
Asset protection refers to keeping your property safe from being taken by someone who wins a lawsuit against you. This can range from a lawsuit related to a negligent act that you performed, such as causing a car accident, to a lawsuit related to the foreclosure of property for which you have stopped paying the mortgage.
How to Protect Your Assets
Depending on the laws of the state where you live and where your real estate is located, certain types of property will be "exempt" from being taken in a lawsuit and other types will be "nonexempt." It is important that you meet with an attorney who understands asset protection planning in your state and in any state where you own real estate to determine which of your assets are protected and which are not. Putting together a comprehensive asset protection plan will then involve working with your financial advisor and estate planning attorney to convert your nonexempt assets into exempt assets. This is the only way to keep your property safe for your own use and benefit.
Caution: Beware of Fradulent Conversions
But a word of caution: Be very careful about when you actually start to put your asset protection plan together, since planning that is done after a lawsuit is filed or even just threatened will not work. This is because taking certain nonexempt assets and converting them into exempt assets at the time you are involved in a lawsuit will be considered a "fraudulent conversion." In this situation, a court will simply order that the conversion be undone.
The time to begin asset protection planning is before you have a problem, not during or after.