Further Thoughts on Asset Protection.
Presuit and Pre-claim Asset Protection Strategies
Asset protection strategies fall into two groups: strategies implemented in advance of a claim being asserted, some form of collection action or suit by a creditor/plaintiff; and strategies that are feasible afterward. It is preferable to plan ahead and be prepared, since the range of pre-suit alternatives is far greater. After suit is filed, depending on the circumstances, options are reduced by laws relating to fraudulent transfers-moving assets around to defeat legitimate claims of creditors. Creditors and courts are on the lookout for these. For details, look at chapter 24 of the Business Organizations Code, entitled the "Uniform Fraudulent Transfer Act." The purpose of UFTA is to prevent debtors from placing assets beyond the reach of creditors. See also Mladenka v. Mladenka, 130 S.W.3d 397 (Tex. App.-Houston [14th Dist.] 2004, no pet.).
After a claim has been made or a suit is filed, the actions of a defendant may be challenged under Texas Property Code section 42.004, which states that an exemption is lost if nonexempt assets are used to buy or pay down indebtedness on exempt assets "with the intent to defraud, delay, or hinder" a creditor. The defense? The transfer was made in the ordinary course of business as permitted by Texas Property Code section 42.004(c). Competent planning should make effective use of this defense relatively easy.
Strategies After Claims Have Been Asserted Or Lawsuits Commenced
Once claims have been asserted against you or litigation is commenced, obvious attempts to maneuver and manipulate assets will likely be detected, at least if the claimant/ creditor/plaintiff is on the ball. The court may be asked to set aside or unwind an allegedly fraudulent transaction. Such transfers are generally indicated by "badges of fraud" including the following stand-out items: transfers to a family member; whether or not suit was threatened before it was filed; whether the transfer was of substantially all of the person's assets; whether assets have been removed, undisclosed, or concealed; whether there was equivalent consideration for the transfer; and whether or not, after the transfer, the transferor became insolvent as a result (i.e., made his cash or other assets disappear all at once).
Fraudulent transfer rules allow courts to reach back up to two years. Waiting until one has no recourse remaining other than to engage in an obviously fraudulent transfer is simply poor asset protection planning..
In post claim or suit strategy, it is important to move assets in such a way that they fall within activities that are considered to be part of the ordinary course of business . You must be able to convincingly claim that a certain action would have been taken anyway, for good reasons that have nothing to do with avoiding a creditor's claims.