It won’t take long for you to lose all the assets you’ve accumulated through hard work if they are not adequately protected. You can lose almost everything you’ve made in a single judgement proceeding if you’re sued; or if you file bankruptcy to resolve some kind of debt.
Luckily, there are laws that protect certain kind of assets in a judgment or bankruptcy. Here you’ll get some idea about the measures you need to take to protect your assets from being confiscated:
Yes, you too can lose your assets
Like many, you too perhaps think that professionals in medicine, law, finance, engineering, and insurance are the ones who need to worry about their assets. However, this is completely wrong. These are not the only litigation-prone professions. There are many circumstances under which your assets too can be attached or confiscated.
You may have to say goodbye to your assets if you file a Chapter 7 bankruptcy suit, or get a divorce, or are on the defensive end of a civil lawsuit. These are kind of situations that many people don’t even consider until they take place. For example, if your teenage kid is involved in an accident and found guilty, the party appealing may go after your assets.
There are laws to protect your assets
The federal and state laws determine what type of protection your particular assets are entitled to get from creditors and judgments.
Traditional and Roth IRAs
Earnings and contributions in your Traditional and Roth IRAs have an inflation-adjusted safety cap of $1 million from bankruptcy proceedings. If justice demands, the bankruptcy court can increase this security cap using its discretionary power.
In addition, amounts rolled over from qualified plans (403(b) & 457(b)) have unlimited protection. However, this type of protection applies only for bankruptcy cases.
Qualified retirement plans
In bankruptcy proceedings, employer-sponsored plans have unlimited creditor protection - doesn’t matter if the plan is subject to the Employee Retirement Income Security Act (ERISA). This includes SEP IRAs, SIMPLE IRAs, defined-benefit, defined-contribution, 403(b), 457, and governmental or church plans under code section 414.
Homesteads
The amount of protection you are entitled for your home varies from state to state. While some states offer unlimited protection, some offer limited protection, and the rest, no protection at all.
Annuities and life insurance
Just like the homesteads protection, it’s the state laws that regulate the level of protection for annuities and life insurance. While some states protect the cash surrender values of life insurance policies and the proceeds of annuity contracts from attachment, some only protect the beneficiary’s interest to the extent reasonably necessary for support. Again, there are states that do not offer protection at all.
Visit your state’s Asset Protection Book website to find the asset protection laws.
How to protect your assets?
There are a number of legitimate ways to protect your assets. Some of the common methods are:
- Using offshore trusts in such locations as the Cook Islands and Nevis to protect assets from creditors. However. these trusts are expensive to establish and maintain.
- Borrowing against your business’ receivables and putting the money into a non-business account. This would make the debt-constrained asset less attractive to the creditors.
- Pulling out the equity out of the assets and putting the cash into assets your state protects.
- Transferring the assets into a family limited partnership against shares in the partnership. Now since the FLP owns the assets, they are protected from creditors under the Uniform Limited Partnership Act.
Few less complicated ways
Some inexpensive and less complicated ways to save your assets are:
- Transferring the assets to your spouse’s name.
- Putting more money into your employer-sponsored retirement plan since it possibly offers unlimited protection.
- Making the most of your state laws as long as homesteads, life insurance, and annuities are concerned. For instance, if you have some good amount of cash in hand, make the remaining mortgage payments.
Conclusion
You may have already come across many self-proclaimed asset protection experts who advertise about how capable they are in protecting your assets. Before you approach any of them, perform extensive research and check with the Better Business Bureau for a reliability report.
