Last Minute Asset Protection

Is it too late to protect your assets if you have already been sued? If you have already defaulted on a personal guaranty? Were involved in a car accident? Received a letter from a government agency opening an investigation? These are the most frequently asked questions. It is our position that it is almost never too late to plan for asset protection.

When an unfortunate event threatens your assets, your choice will be binary – do something to protect your assets or do nothing. If you do nothing to protect your assets, your odds of success are zero. If you use an asset protection plan, your odds of success will be infinitely greater than zero. In the immortal words of Wayne Gretzky, “One hundred percent of the shots you do not take, do not go in.”

It is true that if you plan “after the fact”, i.e. after something bad has happened, the odds of success will be lower than when planning beforehand. But your odds of success will still be high. Depending on the assets you need to protect, how aggressive the plaintiff will be, and the structures we utilize, the odds of success will range from 50-99%!

Here is a recent example of last minute asset protection. You will find other examples in the case studies section of this website.

Harold is a real estate investor and developer in Manhattan. Over the past several years he had experienced a string of bad luck. Projects kept failing and Harold kept dipping into his savings to cover shortfalls. On two occasions he had to sell some of his portfolio properties to cover creditor claims.

Most recently he found himself facing a possible loan default on one project and a lawsuit by investors on another project that had failed. The potential exposure would have led to Harold’s financial ruin.

His primary remaining assets were three small apartment buildings that he had inherited from his parents and have been in his family for close to fifty years. When we recommended to Harold that she should sell these buildings and then seek structures to protect the cash proceeds, he was adamant that he could not sell these family “heirlooms.”

This is something we commonly encounter. Many of our clients are very reluctant to part with their real estate – whether it is their residence or an investment property. While we understand the emotions involved, when faced with serious financial adversity logic should prevail. Harold’s real estate was an heirloom to him, not to his creditors. Creditors would never hesitate to take your home or your prized income producing property. To them, it is just money.

We explained this to Harold, but he could not commit to taking any action. Several months passed and the potential litigants had all filed lawsuits. Was it truly too late to do something at that point?

Harold finally took action and sold all his real estate. We protected the sale proceeds with an offshore structure, and Harold settled with all his creditors for less than 10 cents on the dollar. After he negotiated settlements with all his creditors, Harold unwound the offshore structures and used the money to repurchase one of the heirloom properties and to purchase other investment properties.

We will always advise our clients to protect assets as early as possible. When planning late, remember, doing something is always better than doing nothing.

When You are Faced with a Lawsuit

Being sued is stressful and scary. If the plaintiff obtains a judgment against you, they will be able to use that judgment to take your assets. You must be realistic about your odds of success and what will happen when the plaintiff prevails. Often, we see clients hide behind wishful thinking and optimism. Hoping for the best is not a strategy for success. You want to hope for the best, and plan for the worst.

Even if you are innocent the lawsuit may go against you. We have seen it countless times. Jurors may side with the plaintiff who appears to need the funds rather than the defendant who they assume has money to spare. Plaintiffs may lie and defraud the court system. The judge may not find your side of the story believable.

Even a judge’s own personal feelings can put you in jeopardy.

As long as I am allowed to redistribute wealth from out-of-state companies to injured in-state plaintiffs, I shall continue to do so. Not only is my sleep enhanced when I give someone else’s money away, but so is my job security, because in-state plaintiffs, their families and their friends will re-elect me.

West Virginia Supreme Court Justice

Many believe that once a lawsuit has been filed against them, it is too late to shield assets from plaintiffs. They are often told so by their litigation counsel or their friends. Our clients are happy to learn that usually there is still a lot they can do to protect their assets.

We strongly recommend protecting your assets before a lawsuit. The old saying, “Prevention is better than cure” is especially relevant in Asset Protection planning. Being proactive is better than being reactive because the odds of success decrease with time. For example, if you are sued because you caused an automobile accident, the best time to plan is before you get into an accident. Once you are in an accident, it is better to plan before the plaintiff files a lawsuit. If they have already filed a lawsuit, it is better to plan before they obtain a judgment. At each stage, the effectiveness of the asset protection structures decreases. But it never decreases to zero. Which means you are always better off doing something rather than doing nothing.

The U.S. is a litigious country and is fraught with frivolous lawsuits. People get sued every day for many reasons. You may have been involved in an accident, an unhappy client sues your business, or a disgruntled employee believes they have been wronged. Everyone is susceptible to being sued, but there are several occupations like medical professionals that are more prone to lawsuits.

Protecting assets is just as important as accumulating wealth. There are many sophisticated asset protection structures available that make asset protection, before and after a lawsuit, possible.

You Are in a High Risk Business

Many businesses and professions are exposed to a significant amount of risk and often insurance coverage is not available, not affordable or not sufficient. Medicine is a good example. Malpractice premiums, especially for surgical specialties, are very expensive. Insurance does not cover all claims or the coverage amount is not sufficient to cover the more significant claims.

Many of our clients are doctors, attorneys, real estate developers and investors, high-tech entrepreneurs, distributors, manufacturers subject to product liability claims and small-business owners. Almost all of our clients carry insurance, and yet often find themselves in situations when insurance is not enough. For those who do not have insurance, quickly realize that when something bad happens, it is too late to insure.

Life is full of surprises and some are unpleasant. Bad things usually happen to other people – but not always. Over the past twenty years we have seen every conceivable type of business and individual get sued. We have seen clients who are in their 90s get into their first car accident. We have seen big Hollywood producers fail spectacularly and get sued by investors. We have seen accountants practice for forty years and then face their first ever malpractice claim. If you operate a high-risk business, your odds of getting sued are even higher.

The consequences of a lawsuit can be financially crippling.  It is better to be prepared. We recommend that you seriously consider taking all available steps to protect what you have worked so hard for.

Do you have adequate insurance? It is tempting to cut corners here, but don’t because this is the first line of defense against lawsuits.

Does your business have the right structure to give you the best protection?

Do you have a solid, updated asset protection plan for your personal assets put together by a reputable attorney?

We have structured thousands of transactions and will be happy to help you analyze your risks, determine the optimal business structure, separate assets from liabilities and protect your personal assets.

For clients who desire privacy and want to separate themselves from their business, we are adept at setting up privacy shields and anonymity structures. If your existing business is facing a creditor claim, we can help you set up a new business and avoid successor liability. Call us, we will be happy to help.

You Have Been in an Accident

The very nature of an accident is unpredictable and unintentional. Traffic accidents can happen anytime, to anyone, anywhere.

The sheer number of people out and about, driving cars and motorcycles; riding bicycles and skateboards, and running or walking, makes it highly probable that someone, somewhere will have a traffic accident. When combined with factors such as distractions, negligence, age, alcohol, and drugs, the possibility of an accident is quite significant.

About six million traffic accidents occur each year in the U.S with 6% of these ending in a fatality, 27% in a non-fatal injury, and 72% in property damage.

Unfortunately, as if accidents weren’t bad enough, they usually come hand-in-hand with a lawsuit. There is a significant plaintiff’s bar that looks to make a living off victims of traffic accidents. With traffic accidents claiming the highest number of personal injury cases, which could involve drivers, riders, and pedestrians, almost anyone on the road right now is in danger of a lawsuit.

We have represented hundreds of clients who were involved in traffic accidents. Our clients include those who have run over pedestrians or crashed into other cars and motorcycles, as well as bicyclists who have struck trees and cars. We have also represented a great many parents whose children were involved in accidents or illegal street races and who are facing lawsuits for a negligent entrustment of a car to a minor child.

The goal of a lawsuit is to get as much money out of the defendant as possible. Many times, the defendant is facing the possibility of losing everything they have. In fact, there are approximately 150,000 practicing attorneys in California alone. Many of them look to suing you and seizing your assets to make a living. We will make it a lot more difficult and a lot more expensive for the plaintiff’s lawyer to take your assets.

How we can provide asset protection for you in the event of an accident

Here is a recent example:

Charles is in his early 90s and is sharp and in great physical health. Charles is married to Susan, who is in her early 80s and is not doing as well as Charles.  Charles was recently involved in an automobile accident, which was determined to be his fault. He carries a $150,000 insurance policy, which the plaintiff’s attorney alleged was not enough to cover the injuries. While the injuries did not appear to be very severe (the plaintiff was back at work two weeks later), the PI lawyer saw deep pockets and was demanding $900,000.  Charles and Susan have a paid off house worth $1.2 million, and approximately $800,000 in the bank. That is their entire life savings and it was very important for Charles and Susan to keep their assets. They are considering moving to an assisted care facility, and will need the cash to get in.

We understand that these cases are usually not driven by the plaintiff – they are driven by the plaintiff’s lawyer. The plaintiff’s lawyer is working on a contingency basis – he gets paid only if he prevails in the lawsuit and then collects on the judgment. If we can make it more expensive and more difficult to collect, he may be reluctant to move forward with litigation.

Following the structuring that we completed with Charles and Susan, we brought in an experienced litigator to negotiate a settlement with the plaintiff. The case was settled for $60,000, much to the satisfaction of Charles and Susan.

We encourage you to be proactive in protecting your assets before anything happens. We also encourage you to carry higher insurance limits and to acquire an umbrella policy.

If you have already been involved in a traffic or other accident and you are concerned that you may be sued, or you have already been sued, contact us immediately and we’ll explore your asset protection options together.

You Are Being Pursued or Investigated by a Federal or State Agency

There is nothing as daunting as the wrath of a government agency. Government agencies operate with unlimited budgets, are stuffed with zealous bureaucrats and usually presume guilt of the person or entity being investigated. We have represented many clients who were investigated, audited, or sued by the Federal Trade Commission, the Food and Drug Administration, the Securities and Exchange Commission, Customs and Border Protection, the Internal Revenue Service, and countless state agencies. We have even represented clients facing inquiries and investigations by the various committees of the U.S. Senate and Congress.

Some government agencies possess powers of seizure and are able to freeze assets. The FTC is a good example of an agency that not only has such powers but eagerly exercises such powers. Recently we saw a client investigated by the FTC. Upon launching an investigation, the FTC froze the bank accounts of the business and of the principals who own the business. Weeks later the investigation was concluded and no wrongdoing was found. In the meantime, our client was unable to pay its employees and vendors and had to declare bankruptcy. Because all accounts were frozen, the client could not even hire lawyers to represent itself before the FTC.

We make it our business to know how aggressive each government agency will be and what steps they will take to collect or seize our client’s assets. We act swiftly to move assets beyond the jurisdiction of the agency in question and to move assets into structures that can withstand a significant attack.

You Owe Money to a Lender

Accruing debt is the easy part. Owing money and the stress that comes with it is not. Many people find themselves in a bad debt situation. We have seen hundreds of clients who have: purchased real estate before the collapse of the market, undertaken real estate development projects to have the funding cut off at the last minute, borrowed money to fund a new business that went under, signed personal guarantees on a real estate or a business loan, lost an anchor tenant at their shopping center, or taken out a credit line.  We have seen these clients borrow money from or sign personal guarantees to large international banks, small community banks, private lenders, private equity funds, former friends and business associates, and the SBA.

Commercial lenders usually make for aggressive and formidable creditors. It is important to know just how aggressive your creditor will be when collecting the debt. Some lenders will immediately issue a notice of default and then move to file a lawsuit. They will prosecute the lawsuit to a judgment and will then move to collect on that judgment and they will not settle or negotiate. Other lenders will allow years to slip by before they take any action. We have represented hundreds of borrowers and guarantors, and know which lenders are aggressive, which will hire private investors, pursue judgments across state lines, which will settle, and which will never negotiate.

If you are worried about a loan default (whether you are the borrower or the personal guarantor), it is very important to pursue asset protection planning before the default takes place. This makes it a lot more difficult for a creditor to defeat the asset protection structure. However, even if you have already defaulted, there are many possible structuring options that will either shield your assets or place you into a much better negotiating position.