JOINT TENANCIES Many people believe that their property is protected if they and their spouse own everything as joint tenants in common with right of survivorship. Unfortunately, this is not the case. The premise behind Joint Tenancy is that a creditor of one of the joint tenants can only reach that person's interest in the property. The only real "protection" gained by this form of ownership is that a creditor can't attach the other person's interest in the property. For example, if a husband has an issue with a creditor only his wife's half of the assets are protected. Surely losing half of your assets is not an acceptable risk. Furthermore, if the wife dies, the protection is terminated, and the entire property suddenly belongs to the indebted husband and is available to satisfy his creditors. Joint tenancy is certainly not a solid asset protection option. TRANSFERS TO SPOUSES Another variation of the Joint Tenancy scheme often used in do-it-yourself asset protection planning is for the high risk spouse to transfer assets outright to the low risk spouse. The reasoning behind this strategy is in the event the high risk spouse is sued, he or she will have no assets which can be reached by the creditor (assuming the transfers were made before a creditor problem arose). The challenges with such a plan are as follows: First, if the low risk spouse dies the property may come back to the high risk spouse and be available to satisfy creditor claims. Another problem with this "technique" is divorce. It can be very difficult to convince a court that it should return assets to the high risk spouse when the transfers to the low risk spouse were undertaken to avoid paying creditors. ASSET RETURN ARRANGEMENTS You've just been sued, you panic, you don't know where to turn; if the creditor succeeds, you'll be wiped out... So what do you do? As variation on the spousal transfer "technique" discussed above, some people will transfer assets to relatives and friends with a secret understanding that the property will be returned when the creditor problem goes away. There are major potential challenges in using such a tactic. For example, when the transfer is disclosed, it can easily be classified a fraudulent transfer to avoid paying creditors and the court will "undo" the transfer and return the property to you to satisfy the creditor's claim. Another often overlooked challenge is the transferred property has now become exposed to the transferee's creditors and now your assets are not only out of your control but at risk! Finally, what if the relationship between you and your friend or relative goes sour? The ownership and control of your assets is in their hands. You get the idea. The bottom line... don't rely on joint tenancy and transfers to family and friends to provide adequate asset protection. |
