This document discusses asset protection planning strategies for an individual professional athlete named X who is involved in an altercation that results in someone's nose being broken. It notes that X currently holds all assets in cash at a single institution, making them easily discoverable and attachable. The document then recommends strategies like forming a family limited partnership to own assets, purchasing insurance, and diversifying financial institutions. It discusses the importance of planning before incidents occur and notes offshore planning is not usually best due to the ability to hold individuals in contempt. Limited partnerships are highlighted as generally the best option due to charging order protections.

1. F. Hale Stewart, JD, LLM, CAM, CWM,
CTEP
For the Law Office of Hale Stewart
832-330-4101

2.  Individual X is a professional athlete. He is
known in a community because of sports
coverage. He is also physically larger than
most people, making him a target for
belligerent people. One night, individual X is
in an altercation in which he breaks someone‟s
nose.
 Individual X holds all of his assets in cash at a
single financial entity

3.  By only using one financial institution,
Individual X‟s personal assets are not 100%
covered by FDIC of SIPC insurance
 By owning all of his assets in his name, his
assets are easily discoverable and can all be
attached and turned over to a victorious
plaintiff
 Fraudulent transfer law now makes planning
impossible.

4.  Individual X had engaged in proactive asset
protection planning. He had formed a family
limited partnership which owned all of his
assets, and had continued to maintain the
appropriate corporate records to ensure the
legal viability of that company. He has also
purchased and maintained appropriate
insurance, and used statutory exemption
planning. Finally, he had also placed his
financial assets with a variety of financial
institutions.

5.  A trial lawyer looking at the preceding
example would be far more likely to settle the
case out of court. He knows that breaking the
structure will be difficult and a positive
judgment is much harder to obtain.

6.  The time to engage in asset protection planning
is BEFORE THINGS GO WRONG

7.  When an asset plan is put into effect is very
important. Fraudulent Transfer Law allows a
creditor to rescind a transaction if it is apparent
the debtor engaged in the transaction to “hider
or delay” collection. In addition, a debtor
cannot transfer assets if he knows or should
know he is about to be sued, the transaction
essentially leaves him bankrupt, or the
transaction is for less than adequate
consideration.

8.  Statutes cover certain assets, making them
exempt from paying claims
 Homestead exemption
 ERISA covered retirement plans
 Certain other financial products

9.  The primary problem with offshore planning is
this: while the assets are offshore, the owner is
usually within the US. Therefore, if a judge wants
to attach the individuals assets, he simply holds
the individual in contempt of court, sending the
person to jail until they repatriate the assets.
 In addition, bank secrecy rules are being
successfully assaulted from a variety of players in
the international tax field.
 Finally, offshore simply has a negative connotation
and may invite unwanted scrutiny.
 As a result, offshore planning is usually not the
best option.

10.  Self-settled trusts – trusts where the person
creating the trust is also a beneficiary – are not
favored by courts. In fact, these structures can
be fairly easily broken.
 However, setting up a spendthrift trust for a
beneficiary can be an appropriate way of
dealing with certain legal obligations.

11.  The standard corporation
 Benefits
 Freely transferable shares
 Long case history
 Understood by most people
 Drawbacks
 Very stringent statutory structure
 Double taxation

12.  Corporate structure with partnership taxation.
 Benefits
 Partnership taxation
 Contract rather than statutory based making them
easier to run
 Drawbacks
 Single member LLC „s have been successfully
challenged by creditors in several states, making the
single members personally liable for debts

13.  Two ownership interests
 The general partner runs the day to day operations
 Limited partners are “passive investors” and are
only liable for their person money put into the
partnership.

14.  Benefits
 Long case history
 “Compression” of assets
 Estate planning benefits
 Partnership taxation
 Drawbacks
 Must hold annual meetings
 Must maintain proper documentation

15.  In most situations, a limited partnership is the best
option, largely because of the charging order
remedy. While individual shares can be seized by
the court – making a corporation a less than
attractive option -- a partnership interest cannot
be. Instead, the court allows an creditor to “step
into the debtors shoes,” and allow him to get
income from the partnership. However, this
allows the general partner to make allocations that
cause an increase in taxation rather than a
distribution. Hence, the reason why most
plaintiffs attorneys settle cases where a limited
partnership is involved.