Asset Protection Planning
Sandra L. Clapp, Esq.
The uncertainty of our economy continues to be at the forefront of our minds as the headlines pummel any remaining optimism for a quick recovery from the present recession. Many wonder what will become of the assets they have managed to accumulate and the liabilities that were incurred in the “good times” since past. Asset protection planning should be a regular point of discussion with your advisors regardless of the economy. As the recession progresses, the topic of asset protection has become a more frequently discussed topic among both professionals and their clients. This article is a summary of some asset protection considerations for review with your attorney or advisors to determine if you are taking all available steps to protect your assets for now and in the future. As each set of circumstances is unique, please do not rely upon this information without seeking qualified assistance. This article is not intended to replace legal advice applicable to your situation and should be used only for informational purposes.
FRAUDULENT CONVEYANCE. Certain transfers of assets to avoid a debt or liability can be set aside in a collection action or bankruptcy proceeding. Under Idaho law, generally a fraudulent conveyance is one where the debtor transferred property for less than fair value at a time when the debtor was insolvent. A debtor is insolvent if the sum of the debtor’s debts is greater than all of the debtor’s assets valued fairly and the debtor is generally not paying his or her debts as they become due. Under federal bankruptcy law, any fraudulent transfer within one (1) year of the date a bankruptcy petition is filed may be set aside. Under Idaho law, a creditor may set aside transfers that occurred four (4) years from the date an action is filed if the debtor was insolvent at the time of the transfer. To be effective, asset transfers must be done in advance of the onset of financial difficulties and should be considered in stages so it does not appear like an attempt to defraud creditors.
RESTRUCTURE MARITAL ASSETS OR GIFTS. Taking into considering the fraudulent conveyance concerns, consider modifying the character of marital assets to establish separate property and separate liabilities of assets owned by a husband and wife. This action must be carefully considered as a marital agreement will control in the event of divorce, separation, death, or other legal proceedings. Consider making gifts of assets to children if you would be otherwise inclined to make such transfers.
PROPERLY STRUCTURE BUSINESS VENTURES. A sole proprietorship or partnership are easy to establish, but do not provide any liability protection for the owners. Consider a corporation or limited liability company for your business, even if you are the sole owner. Once established, hold regular meetings and prepare minutes of the meetings, establish separate bank accounts, contract in the name of the entity, do not personally guarantee any obligation if possible, and follow all legal formalities to confirm the separate existence of the business entity. Consider forming management companies or leasing companies to distance control of the entity from the owners and to absorb liabilities arising from the management function, although this requires relinquishing day to day control over the business. Plan for succession of the business and put necessary contracts in place. Review asset exemptions allowed under federal and state law to properly hold exempt assets.
INSURANCE. Review all policies of liability, casualty or professional insurance to make sure it adequately protects your present business and personal activities and assets.