Asset Protection – Avoiding Fraudulent Transfers

During consultations, clients frequently ask, “Now that I’ve been sued, what can I do to protect my property from a judgment?” Sadly, the law of fraudulent transfers limits the options available to a lawyer to help you protect your assets in such a situation. As with most things, when it comes to protecting your own property an ounce of prevention is worth a pound of cure.

What Is a Fraudulent Transfer?

Very simply stated, a fraudulent transfer is a transfer of property which defrauds a creditor. Most frequently, these claims arise when a defendant hides or moves assets in an attempt to keep them away from a creditor after the defendant knows they are due.

1. Take an inventory of what you own. To understand which protection strategy is most appropriate, you must first know what assets need protecting. Your real estate, business interests, large amounts of personal property, or assets in any number of forms may require different protection strategies. Knowing exactly what you own and comparing that information with Texas Homestead Protections will help you and your attorney better understand where you are most at risk.
2. Take action. Now that you know exactly what you own, assess your risk in a discussion with your attorney. You may be at more or less risk depending on the activities you undertake, the type of property you hold, and the amount of property you own. Be proactive. Fraudulent transfer issues are best addressed by careful planning in advance. Several tools are available, such as Trusts and corporate entities, to make it more difficult for a creditor to locate and reach your assets. However, these tools are best implemented far in advance of a claim arising, so a discussion with your attorney should occur before you know of a specific claim against you.
3. Leave something behind. If you fail to plan, and nonetheless face a creditor, all is not lost. After discussing the issue with your attorney you may still be able to employ asset protection strategies to protect those assets that are not at risk. For example, assume you have $2,000,000 in assets at risk, but face a claim for only $25,000. You may still be able to take preventative measures for the $1,975,000 in assets which are not subject to that claim without defrauding a creditor.
4. Lather, rinse, repeat. Don’t stop! Periodically review your plan and stick to your plan if you have assets at risk. Like anything, asset protection plans requires maintenance. To make sure your plan is working the way you intend, regular review by legal and financial professionals is a wise choice.