Asset protection is set of legal techniques and a body of statutory and common law dealing with protecting assets of individuals and business entities from civil money judgments. This is an area of practice in both the legal arena and financial arena, with a variety of legal and financial instruments utilized to protect your assets.
Asset protection often utilizes bankruptcy laws to protect you, which results in the rules and strategies varying by state. Florida is well known as a haven for asset protection, with strong homestead protections that protects your primary residence from seizure, regardless of cost. There are famous cases of people moving to Florida and buying massive homes to shield assets from a lawsuit.
Financial instruments like life insurance, retirement accounts, and partnerships can be used to protect your assets and wealth, which can replace or complement the usage of trusts to shield your money from creditors in the case of a lawsuit. Each individual’s situation is different, and the entity that they are protecting their money from is different.
An upper middle class family trying to shield some cash savings from reporting on the FAFSA form for student aid will have different interests from a wealthy doctor worrying about malpractice lawsuits. It is important to review your asset protection plans with a competent attorney and CPA, making certain that you have legal protections and a financial plan that makes sense. Most financial planners have familiarity with asset protection strategies, but may be more limited in their legal and tax understanding of these decisions.