Orange County Blog

Friday, January 5, 2018

When is the best Time to do Asset Protection Planning?

Many if not most potential client inquiries regarding asset protection planning are crisis-driven.  An accident has occurred or a lawsuit of some kind has been initiated against the client.  Faced with the reality that a negative judgement will wreak havoc upon his finances, the potential client seeks advice from an experienced asset protection lawyer.

Unfortunately Fraudulent Conveyance laws make transfers under such circumstances voidable against current, known creditors and subject to statute of limitations requirements, even future unknown creditors.  Therefore some potential clients are discouraged from doing asset protection planning and simply "roll the dice" with respect to the current litigation and hope to win the lawsuit to avoid the financial loss.

Naturally, the best time to do asset protection planning is years before a problem arises.  But the second-best time is NOW!

Even upon the eve of litigation, some asset protection planning may be possible, with the understanding that transfers that would be considered fraudulent conveyances would not be effective against the current creditor.  However there may be strategic and tactical benefits to undertake asset protection planning, even during litigation.  For example, re-allocating an asset to a statutorily protected asset class (like a 401k plan or a California Private Retirement Plan, for example) might make sense.  In addition, the debtor might be in a better negotiating position, both during and after the litigation.  

If the litigation goes your way, you have "dodged the bullet" against that particular creditor.  But if you lose the case, by not doing any asset protection planning you lose your assets.  However if you take steps to protect your assets even in the face of current litigation, if you lose your case, you might still have some leverage against your current creditor and you will be far better protected against any future problems, too.  

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