Good asset protection works. I have had a client who was involved in complex and expensive civil litigation in Washington, D.C. with a former business partner. When I first met the client he was living and working in Virginia just outside D.C. although he had some business in Miami, Florida. He and his wife were in the process of getting a divorce. His litigation opponent was aggressive, well-funded, and unwilling to significantly lower his demands in settlement.
The client bought a home in Florida for $750,000 cash with stocks and money from a previous business sale. Even though he continued to commute to Virginia to run his business he obtained a Florida driver license and forwarded all his mail to his Florida house. He and his wife agreed to remain married so that their joint bank account was protected from the creditor as a tenants by entireties asset. The client took half the money in the joint entireties account and bought an annuity. This was not a fraudulent conversion as the money was exempt in the joint account. He took some money in his own name and invested it in his brother’ s car wash business in exchange for a minority interest in the brother’s LLC. His remaining liquid cash was deposited in a small out of state bank.
This asset protection plan was not air tight. The client’s status as a Florida resident could be challenged because he spent most of his time at his former Virginia location. His investment of money in his brother’s business could be challenged. Nevertheless, at the parties’ most recent mediation the client announced to the opposing attorney that he had purchase a home in Florida and moved to Florida. He claimed that he was living off money in his joint marital account. He did not claim he was “judgment proof” or that any judgment against him was “worthless.”
The opposing attorney did not react to the client’s pronouncement at the mediation. The next week the case settled for zero dollars. Both sides agreed to withdraw their competing claims and pay their own fees. This is how asset protection is supposed to work. The client’s asset protection plan was not perfect, but it was good enough to convince his opponent that the already expensive lawsuit would be followed, at best, by an expensive collection process of uncertain result. Asset protection cannot eliminate all potential problems such as fraudulent transfer issues or the potential for the rare involuntary bankruptcy, but it can substantially increase your negotiating power in civil litigation.