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Blind Justice

By Rob Lambert - Email Editor

Date: June 29, 2006

Justice is often said to be “blind.” This is usually a reference to the presumed universal fairness of our system and the infinitely wise judges and jurors who make it work. Justice is supposedly administered without regard to race, creed or position in society. Well, nothing could be further from the truth.

Judges and juries are simply not fair. They are human beings and have prejudices. Just ask any rich man divorcing the much younger mother of his three children or the white man facing an all black jury deciding if his herbal tea caused the death of an elderly black woman. Neither will get a fair trial. You can expect the judge evaluating the divorce to do his level best to stretch the law as far as he can to comfortably provide for the young soon-to-be-divorced mother. In the same way, you can take it to the bank that the black jury is going to separate the white vitamin salesman from his hard earned savings.

I have seen it again and again. Judges and juries don’t care about legal technicalities. They care about using the law to get to the result they prefer, no matter how hard they have to stretch. If you are naive enough to believe what you were taught in school about our judicial system being fair, then you are in for a rude awakening. Once you have two cents to rub together, you can and will face attack.

What I want to deal with in this newsletter is two common mistakes people who do Asset Protection make. Each of these mistakes is grounded on the unwise presumption that our system is fair.

First mistake: Relying on the Bankruptcy System to eliminate your debts after doing Asset Protection Planning. This is almost always a mistake. When you choose to go before a bankruptcy court, you are dealing with a federal judge who has one job: To collect all of your assets and pay them out to your creditors. Even if you have an old-and-cold Asset Protection Trust, he will be sorely tempted to order you to turn over the protected funds. If these funds don’t get delivered to the judge, and he believes that you have the power to get to the protected funds, he will throw you in jail. Don’t ever trust the law to protect you from a pissed-off federal judge. He won’t care if the statute of limitations has run, or that the Trust has a valid business purpose and the Red Cross is the primary beneficiary. Honestly, if he thinks you are a scumbag using technology to disenfranchise creditors, you can expect the judge to be just as creative as a medieval dungeon operator in fashioning remedies designed to set your mind straight. In short, these judges do what they want in most cases. It is never worth the risk.

Honestly, since your assets are well and truly protected from creditors with a properly done plan, it is almost never worth the risk to submit your future to an all-powerful federal judge.

Second Mistake: Thinking that any entity will effectively protect real estate if a judge is determined to separate it from you. I often tell my clients that they could pay me a million dollars to do the best, most fancy, multi-tiered plan in the world and, if the asset they are trying to protect is real estate, this wonderful plan can all be for naught. Why is that? Simple: The real estate is attached to the ground and cannot be moved. With the simple stroke of a pen, any judge with jurisdiction over the dirt can undo all of my fancy planning. He will bend the law if necessary to provide a justification. With real estate, I always tell my clients that they need to be prepared to extract and protect the equity in the real estate if trouble comes.

The bottom line is that you should never trust our judicial system to be fair. Sometimes, if you can afford it, our system will surprise you and do the right thing; however, never ever count on this.

The beauty of Asset Protection Planning, done correctly, is that you no longer have to trust the judicial system to be fair. You can reserve the right and power to choose the battleground. In short, almost all plans, no matter how structured, have technology which eliminates the power of the local judges over the protected assets. You can be sure this doesn’t earn you any brownie points with the local judges, but so what? As long as you keep your money and aren’t exposed personally to the potential of a contempt order, you have what I would consider a good result. The downside is that you won’t be invited to join the judge’s country club. So what.

So, be careful to always have the power to choose the battleground. Hopefully, if you do this you will never ever have to do battle.

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