If you want to protect your assets for your beneficiaries in the future, then having an asset protection plan is extremely important. The purpose of asset protection planning is to evaluate your assets and arrange them in a way that they can be protected against losses such as debts and legal judgments. Transferring assets to various types of trusts and establishing retirement accounts are some common strategies for asset protection. However, if your protection planning is not done right, you may find yourself in jail for creditor fraud or tax evasion. Understanding what the law considers to be fraudulent transfers can keep you out of trouble.
How is a fraudulent transfer defined?
A fraudulent transfer, sometimes referred to as a fraudulent conveyance, means moving your assets for the purpose of evading your creditors or some legal liability. Whenever you convey assets with the intent of hiding them from a legitimate creditor, you have made a fraudulent transfer. You don’t have to know that hiding your assets is illegal. The only “intent” required is knowing that your assets are at risk, or could be used to satisfy a legitimate legal obligation, and you purposefully move them out of reach.
Avoiding the appearance of fraud
The best way to avoid the appearance of making a fraudulent transfer is to be proactive. In other words, create your asset protection plan before your assets before there is a legal judgment or creditor’s claim. If you convey your assets at the time your asset protection plan is created, before you are embroiled in a legal battle, you can avoid the appearance of fraud. In reality, it is all about timing. Depending on the circumstances, you could be accused of fraud, even if debt avoidance was not your intent.
Start your asset protection planning before a claim arises
An asset protection plan must be established long before any creditor’s claims have been made, in order to be truly effective. Why? Because any transactions you make involving your assets after the claims have arisen, will most likely be considered fraudulent.
It is also important to plan ahead because, most people do not easily recognize when a claim of liability may arise. If you have already received a demand for payment of a debt, or served with a lawsuit, it is probably too late.
What are the consequences of making fraudulent transfers?
A dangerous assumption that many people make is that the only consequence of a fraudulent transfer is that the asset transaction is canceled or reversed. The fact is, there are some very serious consequences that may affect, not only the debtor, but also anyone who aided in the fraudulent transfer. In addition to being required to pay the attorney’s fees of the creditor(s) involved, the debtor may also lose the chance to discharge the debt in bankruptcy. Even worse than the civil penalties, most states, including California, consider a fraudulent conveyance, a misdemeanor.
If you have questions regarding fraudulent transfers, or any other asset protection issues, please contact the Schomer Law Group either online or by calling us at (301) 337-7696.