Date of
Publication: April 7, 2009
Is it ever too late to protect your assets?
By Jeremy D. Eveland, MBA, JD
I recently met with a client who
wanted to protect his assets. The reason why he felt like he
needed asset protection is because he was being sued.
Although the law favors and
encourages asset protection in most circumstances, there is a
point when it is not permitted. When you are currently being
sued is one of those times. If my client were to engage in
transferring his assets during the lawsuit, and then a judgment
later obtained against him; this would be a fraudulent transfer.
Fraudulent Transfers
Protecting your assets from
potential liability is an accepted part of sound financial and
business planning. As an asset protection attorney, I have often
used trusts, corporations, limited liability companies, family
limited partnerships, and other strategies to foster business
growth and investment by enabling my clients and their
businesses to effectively limit potential losses from their
activities. However, the most important aspect of asset
protection is really (1) when the transfer was made and
(2) for what purpose the transfer was made.
Throughout the United States,
there are laws which prohibit the transfer of property if it is
done with the intent to hinder, delay, or defraud a creditor.
Laws also require that in transferring your assets, you leave
yourself enough money and property to meet your foreseeable
obligations.
In Utah, there is the Utah
Fraudulent Transfers Act in Title 25, Chapter 6 of the
Utah Code. It states that a transfer made or obligation
incurred by a debtor is fraudulent as to a creditor whose claim
arose before the transfer was made or the obligation was
incurred if: (a) the debtor made the transfer or incurred the
obligation without receiving a reasonably equivalent value in
exchange for the transfer or obligation; and (b) the debtor was
insolvent at the time or became insolvent as a result of the
transfer or obligation. See
Utah Code Section 25-6-6.
Let’s take just one example to
illustrate. Let’s say you owe Harry $15,000. Harry sues you to
recover the money. You know that your only asset is a car worth
about $20,000. You don’t want to lose your car so you sell your
car to your brother and don’t charge your brother for the car.
You change the title of the car to your brother’s name. This is
a fraudulent transfer.
So, you might be asking: How do I
protect my assets with these fraudulent transfer laws?
In some cases the answer is
clear: You probably cannot protect some property from an
already-incurred debt or judgment.
You are obligated to maintain the
ability to satisfy existing debts from your available assets or
income. It is permissible to create an asset protection plan
while you have outstanding obligations, as long as it is not
directed at your current debts and you make available sufficient
resources, from income or other assets, to repay your
outstanding debt. If you fail to repay an existing debt, and it
can be proven that the asset protection plan was intended to
avoid this payment, the fraudulent transfer law permits your
creditors to set aside your asset protection plan to reach those
assets purposely transferred.
Here is some good news: Despite
the fact that the law prevents you from creating an asset
protection plan to evade current debts, the law does allow you
to protect your assets to avoid possible future liabilities or
unanticipated creditors.
What Should You Do Now?
Fraudulent transfer rules can be
used to overturn an asset protection plan when the creditor
demonstrates that the asset protection plan was created with the
intent to avoid paying an existing debt or claim.
Asset Protection to protect
against unforeseen future risks and liabilities is both
permissible and effective.
You should consult with a
competent attorney who regularly practices in asset protection
and take action to protect your assets as soon as possible.
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If you or a member of your family needs the services of an experienced
Business attorney, please contact Jeremy Eveland at the law firm
of Eveland & Associates, PLLC. I am committed to helping you protect your company and your
personal assets
.