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Asset Protection and the Local Judge

By Rob Lambert - Email Editor

Date: Dec 29, 2005

There are many cases, mostly unreported because they take place at the trial court level, where folks with poorly conceived Asset Protection Plans were threatened with contempt or actually jailed.

All of these plans, which got their settlors in trouble, had one or even two common flaws, any one of which is fatal (meaning it can get the settlor thrown in jail).

FATAL FLAW ONE
The plans were done when the smoke was already in the teepee, and everything worth getting was ferreted away. I constantly harp on the fact that all Asset Protection should be done when the financial seas are calm; or, if it is not calm, then two to even four times the worst case pending creditor attack should be left unprotected. People who panic when a threat comes and then put everything they have into some ill-conceived Asset Protection Plan are asking for trouble. Pigs do get eaten.

FATAL FLAW TWO
The plan was designed so that the settlor would retain control over the plan and had the power to pay protected assets to a creditor (or at least the judge thought so). People who do Asset Protection typically have a distrust for mankind in general and the legal system in particular. They are, to be blunt, cynical control freaks when it comes to their hard earned money (as most successful people are). These control freaks make a mistake when the level of control is retained in the face of a creditor attack.

Now, here is what a judge sees when he examines a faulty plan: He sees that a creditor (could be either a civil or, even worse, a governmental one) put the bad guy (the debtor) on notice that an attack was coming. Once in receipt of the notice, the bad guy found some shady Asset Protection promoter to put everything worth seizing into some account in some place that the judge can't get to. Bottom line: The judge sees that this bad guy has removed his assets out of the judge's reach after the problem arose. No wonder the judge gets pissed off! You would too. It is a bad thing to tell a judge (by your actions) that he is insignificant. What you are saying is that he can do anything he wants, but he can't get to the money. Quite naturally, the judge wants to fix this problem. In most cases, the only thing he can do is put the settlor in jail. This sometimes happens.

I have not found any case where a settlor was threatened with contempt with a Plan which has the following two characteristics:

1. The plan was done when the financial seas were calm with plenty of unprotected assets reserved to pay all known and reasonably anticipated creditors.

2. Once the financial seas become stormy, the settlor has no capacity to move the money into the judge's control. The settlor should automatically be put into this “powerless” situation once trouble comes up.

Properly conceived plans, settled when the financial seas are calm, work well and do not expose their settlors to contempt orders.

So, don't be a pig, and don't get eaten. Do your planning when you don't “need” to, and you will be fine.

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