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Asset Protection – Part 1

Much depends upon whose assets you are looking to protect. If the assets are those that are coming to you, the debtor, then typically, those can be protected completely. We’ll look more at that in next week’s blog. But, this week, let’s assume that these are the debtor’s own assets to be protected.

The debtor could protect their own assets in three general ways: 1) insuring against the risk, 2) shifting the assets into categories protected under state law or federal bankruptcy law, or 3) shifting the assets to someone or an entity where the creditor cannot attach.

Whenever the creditor is looking to protect their own assets, especially by shifting them to someone else, the threshold question is whether it is a fraudulent transfer. A transfer may be deemed to be fraudulent based on various badges of fraud:

  1. Transfer to an insider
  2. Debtor retained possession of the property after the transfer
  3. Transfer was concealed
  4. Debtor was sued or threatened to be sued prior to the transfer
  5. Transfer was of substantially all assets
  6. Debtor absconded
  7. Debtor concealed assets
  8. Inadequate consideration
  9. Debtor was insolvent or became insolvent shortly after the transfer
  10. Transfer occurred shortly before or after substantial debtor was incurred
  11. Debtor transferred the assets to a lienor who transferred the assets to an insider of the debtor

These badges of fraud are found in common law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfers Act, or the Bankruptcy Code. While the badges of fraud underlie each of these, they each have their own spin on the concept.

Assuming it is not a fraudulent transfer based on the laws of the jurisdiction, the debtor is free to engage in asset protection planning, including transferring the assets to others. Next week, we’ll delve deeper into asset protection.


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