Michigan Asset Protection Lawyer Blog

One of the most difficult issues facing a Michigan asset protection lawyer is how to help a client who is already in severe financial distress with banks and other creditors breathing down her neck. We all know that any tranfers made with the intent to delay, hinder or defraud the creditor will be a fraudulent transfer subject to the remedies of the Fraudulent Transfer Act. Are there any techniques that can be used at this stage that will provide asset protection to the debtor but avoid or at least withstand a fraudulent transfer challenge. A couple of lawyers in Boston believe so and this author agrees with them.

Alexander Bove and Melissa Langa assert in their June 2009 article appearing in Trusts & Estates Magazine that a post-nuptial agreement may provide a solution. It is suggested that a debtor spouse can transfer assets to a non-debtor spouse in consideration of the non-debtor spouse entering into a post-nuptial agreement provided there is adequate consideration and the post-nuptial agreement otherwise conforms to the requirements of state law. Their premise is that marital rights accrue and gradually vest over the course of the marriage and there is no reason the couple cannot agree to formally acknowledge the existence of those rights and transfer property to reflect their actual legal interests. Perhaps it is best understood if you consider a 25 year marriage where significantly all of the assets, which were generated during the marriage, are titled in the name of the debtor spouse. It is well accepted that a long-term marriage such as this one would entitle each spouse to 1/2 of the marital estate in the event of a divorce. If such is the case, why shouldn't they be able to effect a transfer of assets to reflect this legal reality.

Certainly an aggrieved creditor will claim the transfer was a fraudulent transfer and that it was made with the intent to defraud the creditor. However, a transfer for fair consideration is not a fraudulent transfer. Moreover, a transfer which merely reflects or confirms the existing rights of the parties in and to the property also may not be a fraudulent transfer. And so the question becomes whether these arguments will defuse an aggressive creditor. While each case is different it is fair to conclude that the post-nuptial agreement and accompanying asset transfer will certainly pose an obstacle for the creditor and an opportunity to negotiate a settlement for less than the full amount of the claim...one of the goals of asset protection planning.

Historically, the vast majority of our asset protection planning clients have been business owners, real estate developers and professionals such as doctors and corporate executives. However, a recent trend has developed in which corporations have also been looking to benefit from asset protection planning in order to better position both themselves and their owners in this volatile economic climate. In the typical situation, a corporation has substantial cash on hand. The concern is that unexpected claims can expose this asset to the company's creditors.

Through contact with several of our sources in Delaware, including both attorneys and several Delaware trust companies, we have learned that a corporation can protect assets from creditors through a trust created under the terms of the Delaware Statutory Trust Act. A Delaware statutory trust, which is considered a separate legal entity apart from its beneficial owners and trustees, may carry on any lawful business purpose or objective.

Delaware statutory trusts have been utilized by corporations for various transactions in which they wish to limit their exposure or liability. However, the Delaware statutory trust also provides a methodology for a corporation, as the beneficial owner of the statutory trust, to insulate the assets of the statutory trust from the creditors of the corporation itself.

The underlying functions and operations of Delaware statutory trusts allow for substantial flexibility for both corporations and their owners. As with all high level corporate and asset protection planning, the key to any plan utilizing a Delaware statutory trust will be in the establishment of a fundamentally sound and practical approach that meets the needs and accomplishes the objectives of the parties. The ability to incorporate a Delaware statutory trust into the asset protection planning process provides exciting opportunities for corporations with assets that may be in need of protection.

Physicians have historically been concerned that if a malpractice judgment is obtained against them for more than their malpractice insurance coverage, their personal assets are subject to seizure by their creditors. For sure, the asset protection industry grew and evolved from its earliest attempts to protect their doctor clients assets in the event of a catastrophic claim. Now an insurance company is offering a product which attempts to provide insurance to cover a portion of the judgment in excess of the physician's malpractice limit. It is called aptly enough "Asset Protection Insurance."

The policy is written to indemnify the doctor's spouse for the spouse's loss. You might ask, what loss does the spouse have if the doctor spouse has a nasty malpractice hit. According to the literature provided by the agent, the spouse has an "insurable interest" in the assets of the doctor and can be so indemnified. To qualify to obtain this insurance there must be a malpractice policy covering the doctor spouse and the face amount of the Asset Protection Insurance cannot exceed the limits on the malpractice insurance. Why not just purchase more malpractice insurance coverage? According to the agent it is much less expensive to buy this insurance than the added malpractice coverage. This author has spoken with and obtained sales material from the agent but has performed no further due diligence or investigation. If interested you should contact Martin Beitler at rpines@aminsure.com.

Asset protection lawyers are often asked whether social security benefits and other similar entitlements such as IRA and pension distributions, workers compensation proceeds, SSI, Railroad Retirement Benefits and so forth are protected from their creditors' claims. The answer is both simple and complex.

In virtually all of these situations, creditors of the recipient cannot execute against, garnish, seize or levy the benefits as they are paid. In the usual case the funds are electronically transferred to the recipient's bank account. So far so good. The funds cannot be grabbed by the creditor. However what happens after the funds hit your bank account? Can the creditor access them at such time? Perhaps, depending upon the nature of the benefit.

Social security benefits, if paid into the recipient's separate account, cannot be reached by creditors even after the money is received. Pension plan benefits on the other hand can be reached by creditors after it hits the recipient's account. The reasoning behind the distinction is that the Social security law specifically states that the moneys paid to recipients cannot be reached by creditors. Pension law says that the right to receive the benefit is protected from creditors but not the actual monies received. Michigan court rules on garnishment have recently been changed to give banks guidance on how to handle garnishments from accounts holding social security and similar payments. The objective is to protect the recipients from having their deposited social security payments taken by their creditors. A key to protecting the funds--there should be a separate segregated account created solely for your social security benefits. Nothing else should go in it and the account should be in the name of the recipient only.