If the asset protection plan is too complicated for the owner to explain, it probably won’t stand up to challenge.
This man had paid an attorney a fistful of money to create LLC’s and limited partnerships, each of which held fractional interests in the other entities. Some pieces of real estate were owned outright by one entity or another; others were held jointly. One LLC was the general partner in another entity.
The client came with a chart, with arrows running back and forth. He couldn’t explain how it worked, or why it was structured that way, other than to make it difficult to reach his wealth.
But it came down to this: if there is no explicable business reason for this arrangement, it probably represents a scheme to hinder, delay, and defraud creditors. One a bankruptcy trustee could penetrate.
One of the hardest concepts of debtor/creditor law for the public to grasp is that of fraudulent transfers. Here’s the rule: you cannot legally transfer property for less than its present value in order to keep the asset from creditors.
Put another way: you can’t give your assets away to keep them from creditors.
At law, there are two kinds of fraudulent transfers: ones with actual intent to hinder creditors, and ones that are constructively fraudulent. [Read more…]