Financial Resource

It is no secret that the United States is the most litigious society in the world. That said, it is important to acknowledge that many of these lawsuits are a necessary component of our legal system, and possibly the only means to right many of the wrongs that occur in our society. However, the other side of this is that a certain portion of these lawsuits are based on nothing more than an attempt by one party to generate a financial windfall from a targeted defendant.

To help combat such legally permitted takings was born the concept of Asset Protection, the legal techniques of protecting one’s assets from judgment. Asset protection is based on the principle that since assets held in your name (minus a few exceptions) can be seized by a judgment creditor, assets not held in your name (and subject to charging order protections) are better protected.

Unfortunately, many “experts” who provide asset protection strategies offer services that range from unethical to illegal. Beware of advisors touting Nevada corporations as a way to “hide” from the Internal Revenue Service (IRS) and thus avoid paying taxes. Take for example the recent case against a very high profile asset protection firm located in Las Vegas, Nevada. At first glance, this company appeared to be a legitimate organization providing advice regarding how to protect yourself and your assets from seizure. They had expensive promotional videos and a nice professional looking office. They even had a well known celebrity endorsing their services in a commercial. However, according to a recent court complaint filed by the Federal Trade Commission, if you cracked the shiny outer coating you found that this group was run by two men, one with a suspended law license and the other a convicted felon. Among the many services that this group provided was the option of having their company listed as the sole signatory on their clients’ corporate bank accounts in an attempt to hide corporate owners from the tax liability of the company. This, according to the group’s marketing materials, helped shield their clients from “capricious federal judges and any government agency”.

Improperly hiding your assets from the government is not a sound asset protection strategy for several reasons.

First, if you owe money to the IRS you owe it. Evading the obligation is a crime. You certainly can use a corporation to minimize taxes and should always do so. But to hide assets and evade taxes leads to big trouble. Second, if you are brought to a debtor’s exam, you will be forced to disclose what assets you have under penalty of perjury. A properly designed asset protection plan allows a debtor to disclose what assets they control, without sacrificing the protection of a proper structure. But anyone who advises you to set up a corporation to hide your assets and avoid paying taxes is going to get you into trouble.

Also be wary of anyone who is advising you to shield yourself through the use of “bearer shares”. Bearer shares are corporation stock certificates which are owned by the person who holds them, the “Bearer”, and are not recorded under the owner’s name. Some unethical asset protection advisors tout bearer shares as a means to shield the corporation. The IRS has been aware of the practice for a long time and if they catch you using bearer shares to avoid paying taxes, be prepared to take an extended vacation in a federally funded resort with no pool and plenty of concrete. Any ethical asset protection advisor will tell you that the use of the bearer share is a bad idea and is now illegal even in Nevada and Wyoming. If an expert is telling you otherwise, politely excuse yourself and run away – quickly.

Further, be aware of advisors telling you it is possible to absolutely bulletproof your corporation from liability. No one can make that claim. There is no magic cloak of protection from liability. That being said, a sound asset protection plan is essential. Although you cannot completely bulletproof yourself due to charging laws and new court decisions, you most certainly can and should protect yourself to the best extent possible. With proper planning and advice, you should be able to adequately limit your personal liability and protect yourself from illegitimate claims and unscrupulous individuals.

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