How You Can Protect Your Assets from Creditors, Lawsuits, and Greedy Relatives

You cannot be too cautious, as the saying goes. If you have some assets that you might lose to a creditor or a greedy relative (such as an ex-spouse, for example), you have to take some precautions and protect your assets in this or that way.

We do not know what the future has in store for us and better be safe than sorry. If you don’t want to be back to square one at some point, you have to find out how you can protect your assets. Luckily, there are several efficient mechanisms that can help keep your assets safe. We discuss these mechanisms below.

Best asset protection strategies

There are certain legal methods and strategies that allow minimizing financial risks that may arise in a court of law or in some other circumstances.

These methods and strategies are quite diverse. You can buy an insurance policy, for example, create a trust (at home or in an offshore jurisdiction), establish a limited liability company, and so on. Such legal mechanisms can protect your assets in case you make personal debts, in case you divorce, or in case your business company makes losses. They will also come in handy if you are involved in a court case.

The choice of the asset protection instrument will depend on the main goals that you pursue and the type of risks that you anticipate. The most popular asset protection mechanisms are the following ones:

• Domestic Asset Protection Trusts;
• Limited Liability Companies;
• Insurance policies: a life insurance policy, an ‘umbrella’ policy, a malpractice policy, etc.;
• Dispute settlement through arbitration;
• Marriage contracts;
• Pension plans such as 401 (k) or IRA, for example;
• Family home protection;
• Offshore trusts.

Please learn more about asset protection mechanisms by following the link.

Protect your assets from possible lawsuits

If you lose a legal case to a creditor of yours or to your ex-spouse, you may also lose your money, property, securities, and so on. However, there are methods of protecting your assets from legal claims.

The methods are quite diverse and your choice will depend on the type of assets that you would like to protect.

Domestic Asset Protection Trusts

A Domestic Asset Protection Trust (DAPT) is a legal instrument that is used in some states of the USA. The property ownership rights are transferred from the trust Settlor to the trust. The property in trust now belongs to the Trustee, from the legal point of view. The Trustee manages the property in accordance with the conditions specified in the trust deed.

When you create a DAPT, you retain factual control over your property while detaching yourself from the property in the eyes of the law. Now, things that you do not legally own cannot be taken away from you. However, any DAPT will have an expiry date and some restrictions may apply as far as the value of the property put in trust is concerned. Besides, not all jurisdictions allow creating DAPTs.

In particular, not all American states provide for this opportunity. As of June 2022, only 17 U.S. states allowed creating DAPTs.

In addition to that, you should realize that this type of trust will be unable to protect your assets in some situations. You cannot avoid child support payments, alimonies, taxes, and some other financial obligations even if you create a DAPT. This means that you have to seek professional legal advice before you decide to set up a Domestic Asset Protection Trust.

The following types of assets can be put in a trust:

• money;
• securities;
• business companies;
• residential and commercial property.

Limited Liability Companies

A Limited Liability Company (LLC) can protect your personal assets from business-related debts and other obligations. If a lawsuit is filed against an LLC, the personal assets of the company founder(s) are going to remain intact whatever the outcome of the legal proceedings is.

If you opt for an LLC as an asset protection mechanism, you should bear in mind that some jurisdictions offer extremely beneficial conditions to the owners of LLCs registered on their territories. Please learn more about using an LLC for asset protection purposes by following the link.

Insurance policies

An insurance policy is an efficient asset protection instrument without doubt. However, there are different types of insurance policies that you can buy and the choice will depend on the type of assets that you want to protect and your personal situation.

An umbrella policy, for example, extends the coverage that an already existing insurance policy has (such as property or car insurance). Let us assume that a car owner is found guilty of causing damage to other car owners and the total value of their losses is 1 million dollars. If the unlucky car owner has an insurance policy that covers only three or four hundred thousand damage, an umbrella policy can be used to cover the outstanding amount.

There are also some special kinds of insurance policies that can protect you from some special kinds of risks. Doctors and lawyers, for instance, often buy Malpractice Policies. Such policies can protect the professionals in case they are accused of malpractice, incompetence, negligence, and the like.

We must note that many national legislations protect insurance policies from arrest or expropriation when a lawsuit is filed against the policyholder. 

Dispute resolution through arbitration

If a dispute between two parties arises, there are some alternatives to taking the case to court. One of such alternatives is settling the dispute through arbitration. This will let the parties avoid court hearings and help them protect their assets.

The employer, for instance, can use this method of dispute resolution to settle disputes with his/ her employees. The job contract can contain an article that provides for the resolution of disputes through arbitration rather than in a court of law. When no legally binding procedures are involved in the process of dispute resolution, the property of all participants is going to be safer.

Marriage contract

A marriage contract can protect the assets that the spouses possessed before they got married. In case of divorce, the property that they have acquired as a married couple is going to be split between them. Different countries will have different regulations as to how the property shall be divided between the splitting spouses. In some countries, the property is divided equally between the two of them, in some other countries everything goes to the husband, and in still some other countries everything goes to the wife.

Pension plans

In many jurisdictions, creditors cannot get access to pension accounts and pension savings. Some of the most popular pension plans include the following ones:

• IRA (Individual Retirement Account).This is a personal pension plan that allows investing in funds, shares, bonds, and other financial instruments while the person has a job and gets a salary. The employer does not contribute to accumulating the capital with this sort of a pension plan.
• 401(k) plan is an opportunity to put part of the salary aside for retirement. In this case, the employer transfers the money to a special retirement account that the employee has.

These pension instruments are used in the USA but other countries have analogous schemes too. In Great Britain, for example, people have Individual Savings Accounts (ISA) and Personal Pension Plans (PPP). In Japan, they have NISAs – Nippon individual savings accounts, and so on.

We must note, however, that the pension money can be used towards covering outstanding tax payments or alimonies.

Please find out about offshore retirement opportunities by following the link.

Family home protection

In many jurisdictions, a family home – the place of the person/ family’s residence – can be legally protected from compulsory sale or confiscation if the person/ family goes bankrupt. This is an exception from the general rule that allows the bankrupt individual to keep a place where he/ she can live even when bad comes to worse and all the money is gone.

Florida as an example of the ‘family home protection’ mechanism

The value of the house that the bankrupt person can keep varies from one jurisdiction to another. In the state of Massachusetts, for instance, the limit is set to US$ 300,000. However, no limits apply to the value of the house in some other states. One example of such a state is Florida.

The house to be kept can cost any amount of money but some restrictions apply anyway. The following conditions shall be satisfied if the bankrupt person is to be eligible for the family home protection opportunity:

• The house shall be used as a primary place of permanent residence;
• The land plot where the house sits shall be not more than 1/2 of an acre if located within the city limits, and not more than 120 acres outside the city limits;
• The house shall be written in the name of the person or in the name of an irrevocable trust created by the person.

Offshore trusts

An offshore trust can be a highly efficient instrument of asset management and protection. Some offshore jurisdictions offer more beneficial conditions to trust settlors in comparison to those that they can find at home. Personal information about the offshore trust settlor remains confidential and his/ her assets are well protected from all sorts of legal claims. We recommend that you should consider the opportunity to create an offshore trust in Nevis or one in Belize.

We must note, however, that this kind of asset protection mechanism can become the subject of scrutiny on the part of fiscal and law enforcement bodies. For this reason, you should approach the matter of creating an offshore trust with great care and seek professional advice.

Asset protection is an issue that has become especially acute in the modern unstable world. What asset protection instrument should you prefer? It depends on your personal circumstances. Sometimes, a combination of several instruments will provide for the security of your assets.

Would you like to protect your assets in the most efficient way and improve the level of your confidence? Please write to info@offshore-pro.info and request a free consultation on the matter. Our experts will promptly get back to you and offer several asset protection instruments that you could use.