Asset protection planning is designed to protect debtors against civil money judgments. There are other types of legal liability for which asset protection is less effective including, for instance, court orders which demand that a defendant turn property over to the court or a plaintiff.These orders often come in the form of disgorgement orders or turnover orders. When a defendant is found to have obtained money wrongfully in violation of various federal laws such as regulatory statutes and regulations the court may order the defendant to disgorge the money to the court or the agency. Agencies such as the SEC or FTC frequently seek disgorgement remedies in federal court. Or, bankruptcy trustees frequently seek turnover orders requiring third parties to turn over to the trustee specific funds which the bankruptcy court believes is part of a debtor’s bankruptcy estate.
Failure to comply with these civil remedies is punishable by contempt and incarceration. Asset protection planning is less effective against this type of civil liability. The principal defense against civil contempt is impossibility of performance. Offshore trust planning is designed, in part, to afford the impossibility defense to defendants. Offshore trust documents on their face make it impossible for the beneficiary to demand return of funds, yet most offshore planning is not properly or effectively implemented. Other Florida exemptions such as homestead protection, annuities, and tenants by entireties do not provide reliable defenses against civil contempt although they are effective defenses against collection of state court money judgments.
Effective asset protection starts with identification of the nature of legal risk. Many people who begin asset protection planning after they encounter legal problems do not understand the nature of civil remedy they face. A legal problem which at worst will result in a money judgment indicates one set of asset protection tools. A more serious legal problem which could result in court orders enforceable by contempt proceeds indicates more extreme asset protection planning with a lesser chance of success. Before you seeks asset protection advice you should understand your legal risks.