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Asset Protection Flash Presentation
Asset Protection and Nevada Corporations
‘Keep Your Business to Yourself’
Avoiding Common Mistakes in Protecting Assets
The best asset protection advice might well be what your parents might have told you: Keep Your Business to Yourself. To see why this is so, this article will examine some of the potential pitfalls with regard to protecting assets based on charging order protection. We’ll also look at some other possibilities after learning about avoiding common mistakes.
Ever hear this one: “Bulletproof Asset Protection”? Uh-huh, sure. There is no such thing. Furthermore, it is almost enough these days for a plaintiff to merely show that you set up such an “asset protection” structure, in order to succeed in having the structure disregarded in the courtroom. As soon as the plaintiff introduces “asset protection” promotional material associated with the promoter of the very structure you paid to establish, the ball is in your court to show that you did not set up such a structure for the purpose of keeping assets from a successful creditor. Yes, the mere allegation that you are protecting assets can expose them. Ouch.
The bottom line is pretty simple, notwithstanding whatever assurances an “asset protection” promoter may proffer: If you are protecting assets for the primary reason of protecting assets from creditors, the courts will almost bend over backwards to make those assets available as long as it does not impair the rights of other asset holders. On the other side of the fence, if you are the plaintiff/creditor, you can be pretty sure of gaining access to the respondent’s assets, if you succeed in making your case.
People have turned in ever increasing numbers to structures that supposedly provide asset protection: limited partnerships; “family” limited partnerships (same thing); limited liability partnerships; limited liability companies; trusts; and various combinations of the foregoing, sometimes even getting quite exotic, with offshore components. Unless you’re planning on living offshore in a non-Hague Treaty (non-extraditable) country to avoid inevitable contempt-of-court charges, the offshore structures offer nothing but a big red flag. With most of these structures, the presumption made while setting them up is that a creditor will only ever be able to gain access to whatever distributions might be made to a limited partner or member, through a charging order granted against the specific member or partner. Forum shopping, however, often allows a plaintiff to join the respondent in a suit in a jurisdiction where charging order protection does not apply.
IF YOU ARE IN A JURISDICTION WITH CHARGING ORDER PROTECTION AND YOU HAVE NO (ZERO) NEXUS TO OTHER LESS PROTECTIVE JURISDICTIONS, SUCH STRATEGIES CAN BE EFFECTIVE but that is not the case most often. Check the laws, not only where you are domiciled but also wherever there are assets AND wherever the structure could be construed to be “doing business”. Be advised, however, that even in charging-order protective jurisdictions, it can be possible for the creditor to attack structures where members/partners have an involvement in management decisions. For this reason it is almost always good advice to have an arm’s length manager. The issue of control at the general partner/manager level is critically important to the strength of all limited partnership/limited liability company strategies.
Some strategists recommend a process of “compartmentalization”, forming a number of expensive multi-entity structures in efforts to prevent your whole carcass from being consumed. But again, you can count on the courts to assist the creditor in gaining access to the assets even when they are distributed in this manner. If the creditor knows you have a number of eggs in a number of baskets, it only prolongs the inevitable, for the judgment shall be satisfied.
Even the most perfectly designed asset-protection structure can still fall apart like the proverbial “house of cards” if you do not take the time to understand and adhere to proper formalities: holding meetings in accordance with the structure’s internal regulations; maintaining the structure’s entities in good standing; keeping proper records; filing tax returns; and in general, treating the entities with respect as being separate and apart from yourself. Everything must be done in a business-like manner or there simply is no “glue” to hold the structure together.
Neither creditors nor courts generally respect anyone who attempts to play “hide the ball” with regard to keeping assets from creditors. KNOW THIS GOING IN AND YOU ARE MILES AHEAD IN THE “GAME” and can set about avoiding the common mistakes touched on above. If you have not already done so, please take a few minutes to sit back and take in the Asset Protection Flash Presentation.
‘Control Everything, Own Nothing’—Nelson D. Rockefeller
LOSE Your Assets—To Your Loved Ones or for their Benefit
Keeping in mind that efforts to keep assets from creditors will often prove futile no matter what you do, you might begin to understand why it is wise to consider this question: Would you rather lose your assets to a prospective litigant or to your friends and family?
Given the obvious answer to that question, “asset protection” can turn into an investigation into how best to LOSE your assets, as strange as that may sound at first blush. If you lost your assets, the whole issue of “asset protection” is moot because, “When you ain’t got nothin’ you’ve got nothin’ to lose.”
How would one go about “constructively” losing one’s assets? The answer to that question is very much the same as the answer to the question: How do people generally lose their assets? Let’s see: They make poor investments; they make poor business deals; and/or they get involved in unfortunate litigation (sometimes even settling out of court to minimize legal expenses). In the latter case, such assets are considered to be properly “attorned” and legally conveyed. In some cases, title to registered property can even remain the same, although the property may end up being liened. It happens all the time and ever more so these days. Spillage of a cup of hot coffee on someone’s lap cost a couple of million dollars, remember? An attorney sued a car manufacturer for emotional distress due to emotional distress arising from a paint imperfection and millions of dollars were attorned in his favor. You probably know of many more examples in this category. Have you ever made a bad business deal? Once you agreed to it, no matter how unjust the outcome might have felt to you, you were “locked in” to the bad deal and had to suffer the consequences, right? Children have had success suing their parents, for goodness’ sake. PEOPLE LOSE ASSETS ALL THE TIME, even if very few end up losing those assets contructively, for the benefit of friends and loved ones.
This is a good point to ask you to STOP and THINK about possibilities. Review the Asset Protection Flash Presentation. Check out our Nevada corporations operating tips, especially with regard to keeping a low profile and handling your financial affairs in privacy and you just might learn how to “Keep Your Business to Yourself” in the process. Study the Strategies presented on this site and especially the “Managing an LLC” strategy, keeping in mind the PRIVACY aspects and perhaps you will have some creative possibilities enter your consciousness.
Think about the value that could be ascribed to intellectual property (the value of an idea); how much someone’s time and effort might be valued; the value of emotional considerations. Then understand the significance of the fact that the Director of a Nevada corporation can issue stock for any such consideration and according to Nevada law, the judgment of the Board in such matters is final. The creative possibilities are almost limitless. In the end, while you may still exert some “suasion”, let’s call it, over the assets, they won’t be “yours”. It’s simple. And it is very effective.
WE DO NOT PROMOTE “BULLETPROOF ASSET PROTECTION” OR “HIDE THE BALL” STRATEGIES BECAUSE THEY DON’T WORK.
Please take the time to discuss your particular situation with one of our seasoned, low-pressure, non-commission consultants. We can work with you and show you how to do things right:
Call (702) 870-5351 for free consultation (before and after)
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