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  • Legal

How To Legally Hide Your Money From Lawsuit?

  • Nabeel Ahmad
  • November 18, 2020

Some professions have a much higher tendency to be named in devious lawsuits. To make sure your belongings are safe from shrewd claims, you should take steps to legally secure them before you are summoned to court. In this article, we discuss asset protection strategies in detail.

Table of Contents

Toggle
  • Best Way To Hide Your Money
  • Asset Protection Strategies
    • Umbrella Insurance
    • Corporations
    • Retirement Accounts
    • The Homestead Exemption
    • Tenancy Options
    • Minimum Ownership
    • Limited Liability Company
    • Asset Protection Trusts
  • Moving Assets During A Lawsuit
  • Summary

Best Way To Hide Your Money

The first thing to understand is that there is no such thing as ‘hiding’ an asset. Assets can be protected by repositioning them. Simply put, you use the laws already in place regarding asset protection to create a wall of obstacles for your opponents. The protection makes it difficult for your assets to be discovered, and for the plaintiff to try to gain access to them. The best way to ‘hide’ your money is to use the asset protection strategies legally available in law.

The key to securing your money and property is to take steps before a lawsuit is filed. Steps were taken too late or after a lawsuit is filed may be deemed as fraud. The court may also freeze your assets even before a judgment is passed. Get to know about your options in time.

Asset Protection Strategies

There are a number of domestic and foreign asset protection strategies you could implement before a lawsuit is filed to keep your property safe from any unlawful claims.

Umbrella Insurance

Umbrella insurance refers to insurance that covers all claims beyond any existing insurance. Essentially, any insurance claims that are not payable by your current insurance are taken care of by umbrella insurance. Take, for example, claims on the property by your neighbor whose garage was damaged by your car. He sues you for $100,000 in repairs. If you are unable to pay off all the claims proven against you, the plaintiff may go after your belongings. The court will then order you to use them to pay off the remaining debt. This way you lose your assets. Umbrella insurance steps in to help you avoid this scary scenario. It will cover the remaining claims so that you wouldn’t have to part with your belongings to pay them off.

Corporations

Corporations prevent your belongings from getting snatched away in the event of a lawsuit against your business. Just be careful you are not part of serious fraud, like tax evasion or not segregating your personal and business property. Whether you have an S type or a C type corporation, the asset protection they provide is similar.

Retirement Accounts

Retirement plans qualified by the Employee Retirement Income Security Act (ERISA) provide unlimited protection of assets from lawsuits. In fact, some individual retirement accounts also provide protection of up to $1 million in assets in case of bankruptcy. Some states have lessened this amount since they opted out of the 2005 Bankruptcy Reform Act’s federal exemption.

The Homestead Exemption

An exemption is a form of relief that a homeowner gets on payments on his home. Exemptions can be of many types, but a homestead exemption allows you to retain some money of your property if a creditor comes after it. Hence, if your property is to be seized in a lawsuit, the creditor will only get the amount leftover after paying mortgages, selling fees, and the homestead exemption to you. So part of the value of your asset stays protected. The homestead exemption laws vary in different states so it’s a good idea to look them up before you submit your application.

Tenancy Options

Tenancy options are options you use to award ownership of your personal residence to your spouse jointly with yourself. There are two tenancy options – joint tenancy and tenants by the entirety. Tenants by the entirety provide more comprehensive and complete protection as compared to joint tenancy. Tenants by the entirety give complete ownership of the property to both the spouses so that even if one is indicted in a lawsuit, the property remains with the other spouse and cannot be taken away by the creditor. The joint tenancy provides partial protection since both the spouses have combined ownership of the house. That means in the event of a successful lawsuit, only the value of the house owned by the defendant is lost – and not the entire residence. The other spouse still has rights over some part of the property.

Minimum Ownership

Minimum ownership is especially suited to people who are in high-risk professions and prone to being sued. This does not mean that you don’t own property. It is a tool to make your assets less vulnerable to discovery by the plaintiff. When the prosecutor looks for assets under your name, he or she will have a hard time finding anything because your name will not exist in public records. How is that possible? If you have a car, you can keep your name out of public records by owning it in a title holding trust. Similarly, you can own rental property in a private land trust for the privacy of ownership. You could then place the land trust in an LLC and provide solid protection to your asset.

Limited Liability Company

Perhaps one of the smartest and most well-guarded asset protection strategies is a Limited Liability Company. Basically, a limited liability company places your assets in a business structure that is a mixture of a corporation and a sole proprietorship or partnership. Placing your assets in an LLC makes you a member. Members are not liable for the company’s debts or liabilities. At most, a judge can give a charging order. The charging order gives the creditor the right to distributions made outside of the LLC, however, the member cannot be forced to make such payments. The payable taxes on the distributions, whether they were disbursed or not, are the responsibility of whoever has the right to the distributions. Thus members often slap the creditor with a ‘poison pill’ – instead of paying the creditor with the asset, the member will send them a bill of taxes instead.

Asset Protection Trusts

Asset protection trusts are iron-clad protection against lawsuits. It not only provides the strongest protection but in many cases, litigants may not even file claims if your assets are in an asset protection trust. Basically, an APT makes the grantor the beneficiary of the trust – assets cannot be moved or touched without the permission of the beneficiary, since the terms and conditions of the trust are irrevocable.

Asset protection trusts can be domestic or foreign. Out of 50, only 17 states allow domestic APT, also known as self-settled asset protection trust. These trusts not only provide asset protection against a lawsuit but also income tax savings in some states as well. The only con – they are not out of the jurisdiction of the US courts and are at a risk from liens, judgments, and federal bankruptcy laws. Foreign APTs place your assets out of the jurisdiction of the US, as they are not within the geographical limits of the country. These offshore accounts make it very difficult for creditors to claim them. Popular offshore destinations include the Cayman Islands, the Bahamas, Panama, etc.

Keep in mind, that whichever strategy you go for has to be carried out before a lawsuit is filed. Do not delay your plans for asset protection.

Moving Assets During A Lawsuit

Moving assets during a lawsuit is seldom an option. Though it may not automatically be considered so, moving assets during a lawsuit can be considered as a fraudulent transfer. That is if the court suspects that you moved the assets just to avoid paying the creditor, it will be deemed a wrongful transfer. It is a civil matter, not a criminal one so you may not go to jail for it but it does carry heavy fines and in some jurisdictions, can face criminal prosecution as well.

Summary

If you are in a high-risk profession and find yourself wondering about how to protect your assets in a lawsuit, the first thing to do is educate yourself. Get in touch with an asset protection firm and take the steps necessary to secure your hard-earned money.

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Nabeel Ahmad

Nabeel Ahmad is the founder and editor-in-chief of Legal Inquirer. Apart from Legal Inquirer, he is a serial entrepreneur, and has founded multiple successful companies in different industries.

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