An Increased Concern for Asset Protection

Asset protection is a very important thing for businesses to consider.  It involves protecting assets from certain legal claims that may arise from creditors, shareholders, spouses and the government.  Asset protection is really important to those in a professional industry, specifically physicians, executives, lawyers, and investors, and others that may be facing an impending bankruptcy or a divorce.  Families that have teenagers driving should also be aware of asset protection.

Asset protection is all about the form, location, laws and integrity.  Many people view asset protection plans as a way to hide their assets and be secretive.  This is really not the case at all.  Asset protection should really be focused on legal ways to protect assets, rather than ways to manipulate the system.

Asset protection can either be simple, or it can be a bit more complicated.  Companies will become incorporated in order to protect assets.  Limited partnerships and limited liability companies can also help to protect assets.

Asset protection plans should really be quite simple.  The goal is to make it difficult for the creditors to gain access to the assets in order to satisfy debts and claims.  The first thing that must be considered the fact that asset protection is best done before a claim arises.  After the claim arises, then asset protection could fall under fraudulent transfer and the assets could be seized.

Each form of asset protection comes with its own pros and cons.  The first two things to decide include the type of protection and the location.  These are two factors that will affect the overall cost of the asset protection plan.

The form of protection can either be complex or simple.  A limited company is a great example of a simple form of protection.  The investors can put their assets into the corporation to help protect them against claims.  Limited companies don’t protect personal claims though, and that should be considered as well.

People may transfer their assets into a spouse’s name in order to protect them against claims, but there are certain restrictions that apply to this. This is something that is addressed sometimes, but if both spouses are at a high level of risk then it may not even be worth considering.  Sometimes, tension can get high, and in the event of a divorce it may not be the best option.

Then, there are more complex methods of asset protection, like a trust.  While the level of protection goes up, so does the cost of the asset protection plan.  When considering a trust, it is important to understand that the legal title of the assets must be relinquished over to a trustee.  The trustee will be trusted with the assets and will charge a fee.

Another decision that people need to make is the location of their asset protection plan.  People may choose onshore or offshore plans.  The problem in Canada is the fact that it is generally a creditor sympathetic country.  Sure, there are a few exceptions, but for the most part they will side with creditors.

If offshore protection plans are chosen, then there are certain laws set forth that make it a lot harder for the creditors to gain access to the assets.  The creditors will have to bring up a lawsuit in the place of jurisdiction, which can be both costly and inconvenient.

Another thing to consider is the fact that most offshore jurisdictions will have a narrow window of time that they allow creditors to file claims.  This can really limit their efforts.

Another type of asset protection plan is the “equity strip”.  This is where companies load up with debt and extract their equity safely.  They can help to protect their personal assets in this manner.

The choice of location is one of the key considerations.  There are almost 70 jurisdictions across the world that will qualify as an “offshore site”.  Most of them have corrupt governments.  It is important to research them ahead of time to ensure that you choose one that has a solid legal system and upholds the law to a high degree.