Protecting Assets From Creditors

By Bob Goldberg, RSPA General Counsel

In difficult economic times credit becomes tighter and tighter. When it does ease up, as it has appeared to do, creditors having learned harsh collection lessons seek greater assurances that they will be paid. Often requirements for credit terms destroy or interfere with the very organization of your business.

Whether you are a Corporation or Limited Liability Company, the purpose of establishing your business in this manner was to protect your personal assets from creditors. It is one thing to have your business on the line, but it is very different to risk your home and personal savings. While many individuals place substantial emphasis on maximizing earnings and accumulating wealth, far fewer individuals focus their attention on protecting assets from creditors. By signing a personal guarantee you are exposing assets that were meant to be protected. Because of our increasingly litigious society, greater emphasis should be given to utilizing the available strategies to protect assets from creditors. While few, if any, asset protection strategies are ironclad, proper planning can make it more difficult for a creditor to attached assets of an individual.

Many states protect the family residence from creditors. Florida is the best example. It is also possible to hold ownership of a principal residence as "tenancy-by-the-entirety". In such an arrangement a creditor cannot force the sale of the home based upon the fact that both parties (husband and wife) must consent. A creditor can place a lien on the home, but cannot force the sale and thus allow you to continue living there.