Michigan Asset Protection Lawyer Blog

We read so much about sophisticated asset protection planning strategies....offshore trusts, domestic asset protection trusts, limited liability company charging orders and so forth. Just read my blog, I'm as guilty as the next about discussing these items. But sometimes the issue facing our client is very mundane and in your face--namely, how do I protect the items in my home. Here we are talking about household items, keepsakes, memorabilia, jewelry, art and the like. Few people know the rules. Still fewer advise their clients properly. Let's say you are at the stage where all planning to shift ownership has been completed and for whatever reason title to the tangible property in the home remains in the debtor. What do you tell your client when the collection man commeth? In Michigan us asset protection planners have a great answer. We should be telling our clients not to let the Sheriff in. Even with a proper Writ of Execution, in Michigan according to our Supreme Court, an officer seeking a judgment debtor's property for purpose of making a levy has no right to force an entrance through the outer door to the debtor's home. However, once he is lawfully admitted to the home he can use reasonable force to get through the inner doors and take what property is subject to the levy. SO MAKE SURE YOUR DEBTOR CLIENT UNDERSTANDS--DO NOT VOLUNTARILY LET THE SHERIFF IN. IF HE FORCES HIS WAY IN IT WILL BE UNLAWFUL AND HE WILL NEED TO RETURN YOUR GOODS.

My good friend and a great collection lawyer, Gary Nitzkin (Michigan Collection Lawyer Blawg), sometimes shares his secrets with me. He will send the Sheriff to the home of an unknowing debtor who will let the Sheriff in. Once inside the Sheriff begins gathering the debtor's prized personal possessions. Before long the Sheriff is on the phone to Gary explaining that the debtor is ready to pay. But this need not happen if you-DON'T LET THE SHERIFF IN!!

Asset protection planners and their Michigan clients have just been given a new gift. For many years the Michigan law provided that certain types of designated personal property, for instance stocks and bonds (and now brokerage accounts per applicable case law), if held as tenants by the entireties, is subject to the protections afforded like ownership of real estate. Therefore, if a husband and wife owns IBM stock as entireties property the creditors of only the wife cannot reach her interest in the stock. Similar rules apply to real estate owned in the entireties in Michigan. The problem was how to make sure such personal property was titled in the entireties and not jointly. Most banks and brokerage houses make it difficult to open an account in the entireties...they would tell our clients that joint ownership means the same thing. Now the Supreme Court of Michigan in Zavradinos, 482 Mich. 858 (2008), has decided that there is a statutory presumption that certain specified personal property held as joint tenants by a husband and wife is deemed property held by the entireties and protected from the creditors of one spouse...even if the account is followed by the designation "JTWROS."

Anyone with modest knowledge about entireties property knows, and this should include all asset protection planners, that the creditors of only one of the spouses cannot reach their entireties property. There are exceptions of course. Fraudulently transferring property into the T/E format doesn't work and the IRS can reach the debtor's interest in T/E property. But for the most part the technique works. Divorce and death though can be hazardous in more ways than one.

So here is today's news. We can now be comfortable that outside of bankruptcy a debtor spouse can convey his or her interest in T/E property to the non-debtor spouse without such transfer constituting a fraudulent transfer. Estes v. Titus, 481 Mich. 573 (2008). What's odd is why this is even an issue. Common sense tells us if the debtor spouse's interest in T/E property is exempt from the reach of his creditors how could his transfer of that interest to his wife ever constitute a fraudulent transfer. Such conclusion is clearly the result of the "no harm-no foul" analysis.

A different rule seems to apply in bankruptcy where the "no harm no foul" analysis has previously been rejected. In Matter of Wickstrom, 113 B.R. 339 (1990), the Court decided in what this author believes is a very strained analysis that a trustee is not prohibited from seeking to recover, as a preferential transfer or a fraudulent conveyance (now a fraudulent transfer), transfers of entireties property owned by a debtor and nondebtor married couple to a third party. Perhaps Wickstrom would be decided differently today in light of Estes if the Bankruptcy Court looks to State law as it is required to do.