Many spouses would like to protect their assets from actual or potential creditors. Often, these individuals mistakenly believe that by simply placing an asset in the name of their spouse, they can protect that asset from creditors. Because California is a community property state, with very exacting requirements for interspousal transfers, these self-designed plans rarely work when challenged by a creditor. California appellate courts, as well as federal bankruptcy courts, have also held that interspousal transfers are subject to the fraudulent transfer statutes.
This does not mean, however, that well-drafted transmutation agreements and postnuptial agreements do not have their place in an asset protection plan. These agreements, as well as setting up a limited liability partnership or establishing a trust, can be effectively used to discourage any actual or potential creditor from pursuing a claim against you.
No plan can guarantee that your assets will be 100% protected, but a well-thought-out plan can discourage a plaintiff from incurring the expense and time involved in pursuing a claim against you, and you may be successful in court if it proceeds that far. It has been estimated that two-thirds of creditors will abandon a claim when faced with a well-thought-out asset protection plan, and of the remaining third, only a small percentage will actually prevail on the merits.
Even if a claim has already been made, it is not too late to do something to help protect yourself. To do nothing is almost certain to result in a loss of your assets if you are found liable. If you set up an asset protection plan with well-drafted agreements, at worst you will have made it more difficult for the creditor to succeed, giving you added leverage in settlement. In addition, you may succeed on the merits if the creditor tries to set aside your agreements.
Everyone’s situation is unique, and each case must be evaluated to determine what asset protection plan might be best suited to it. Relevant factors include how you currently hold your assets (individually, in a corporation, in a partnership, and so on), who your actual or potential creditors are (a bank, an individual, the IRS), what exemptions may already apply (such as the homestead exemption), and whether any claims have already been made and when.
If you would like to discuss your options, and how our office can help you, please schedule an appointment to review your case with an attorney who specializes in California family law and has extensive experience with collection issues.