Asset Protection Planning | Alexander Estate Law

Are Your Assets Protected from Creditors

The sheer number of lawsuits, bankruptcies and divorces that are filed each year will astound you. Wealth created through a lifetime of work can be lost overnight if you haven’t taken steps to protect your assets. Asset Protection Planning is the process of legally protecting assets from potential creditors.

Asset Protection Planning is especially prudent for professionals and small business owners, whose personal assets could be at risk due to the nature of their employment or operation of their business. Often, proper risk management tools and subtle strategies can be employed that will allow you to exempt assets from private claims, limit personal liability through legal entities, and transfer risk inexpensively through insurance.

If you are a professional or small business owner, it is important to understand the impact of claims made against your business assets as well as claims made against your personal assets. Christopher M. Alexander has represented individuals, families and businesses for 25 years and is a skilled and experienced estate planning attorney, contact Christopher M. Alexander at (513) 228–1100 or chris@alexander-legal.com.

Too Little Too Late

Plan ahead, it’s that simple. Although each set of circumstances will be different, one simple rule of thumb is applicable to every situation:

Rule of Thumb After a lawsuit has been filed against you is generally too late protect assets. Assets moved after a lawsuit is filed (or after proper notice of claim is given) may be viewed as an attempt to conceal assets.

Concealing assets from creditors is illegal. Shielding assets from creditors by structuring a business properly, funding retirement accounts, titling assets deliberately, and purchasing sufficient insurance in case of a future judgment(s) is legal.

More than One Way to Tie Your Shoes

All of us would like to protect our assets from potential creditors. In many instances, there may be several options available to you and often, the simpler solution will provide all the protection you need.

Professionals & Small Business Owners

Opening a new business can be overwhelming and the informality of a sole proprietorship is attractive to owners who do not want to incur legal fees to create and maintain a legal entity. As the business grows, however, it is essential that your sole proprietorship be converted into a proper legal entity, such as a Corporation, Partnership, Limited Liability Company, or Trust.

Under a sole proprietorship, lawsuits brought against the business are actually lawsuits brought against the owner’s personal assets. On the other hand, lawsuits brought against a properly created and maintained business entity are lawsuits brought against only the business’ assets. Conducting business through a proper business entity offers considerable benefits if you are able to maintain separation between personal and business assets.

Domestic Asset Protection Trusts

An Ohio Domestic Asset Protection Trust (“DAPT”) can provide powerful protection from creditors, but only if the trust is drafted, implemented, and funded properly. The DAPT has been referred to as “the most affordable asset protection tool” available in the U.S. Utilizing a DAPT creates a unique opportunity for individuals to shelter assets from most creditors by creating an irrevocable trust that can act as a barrier to future liabilities.

Asset Titling

If you are married and concerned about creditors against one spouse, putting assets in the other spouse’s name removes those assets from a creditors’ reach. This is common in situations with licensed professionals who operate their own practices. In these situations, it is not uncommon for the licensed professional to title non-business property in the sole name of the spouse. Keep in mind that these assets will now be subject to your spouse’s creditors.

Funding Retirement Plans

In most situations, properly established retirement accounts are off limits to creditors. This includes Individual Retirement Accounts (IRA), Simplified Employee Pension Plans (SEP), employer-sponsored 401(k) accounts as well as Roth IRA and Roth 410(k) accounts. Keep in mind though that if you owe back taxes, child support or alimony, retirement funds may often be used to satisfy the debt.

Insurance Policies

Various types of insurance can be used to safeguard assets, whether titled in your personal name or in a business name.

Liability Insurance: Liability insurance protects assets in the event damages are owed to a customer where you or your business is deemed legally responsible for the injury and/or damage to property.

Malpractice Insurance: Malpractice insurance can safeguard assets owned by a licensed professional in the event of malpractice, professional misconduct, and fiduciary negligence.

Umbrella Insurance: Umbrella insurance supplements other insurance by providing extra protection beyond your existing limits and coverage. Umbrella insurance is typically inexpensive when added to your existing homeowner’s policy or other type of insurance.

Life Insurance: Life insurance is exempt from seizure by most creditors.

Homestead Exemption

A homestead exemption protects a portion of the equity in your primary residence from most creditors. In Ohio, the 2023 exemption limit was $136,925.00.

Prenuptial Agreement & Postnuptial Agreement

Prenuptial agreements and postnuptial agreements have many uses and benefits. In many instances, current and future assets can be retained by one spouse rather than being jointly owned by both spouses in the event of a divorce.

Alternative Dispute Resolution

Once a lawsuit is filed, or a valid notice of claim is served, options short of protracted litigation should be considered. Alternate Dispute Resolution (ADR) comes in many forms and is growing in use and popularity for small businesses disputes.

Mediation and arbitration have traditionally been reliable ADR methods used to resolve civil disputes. As litigation costs rise and the time necessary to resolve disputes grows, many courts are experimenting with quicker, cheaper, and more hands-on options for litigants to resolve disagreements. Keep in mind that most ADR methods are confidential.