When undertaking asset protection planning, one of the most important considerations is timing. You don’t want to be like Artie Fufkin, who admitted that he “f*cked up the timing” on a very important project in Chicago many years ago.
The ideal time to implement an asset protection strategy is before there are any creditor threats on the horizon. The reason for this is to avoid any fraudulent transfer issues. If a debtor makes a transfer of assets for the purpose of avoiding paying debts or other financial obligations when they come due, the conveyance may be deemed a fraudulent transfer and can typically be undone by a court. Conversely, if assets are transferred for fair market value at a time when no credible threats from creditors exist, no fraudulent transfer concerns will arise.
It is a common misconception that asset protection planning cannot be done after creditor threats arise. Some are under the mistaken belief that a transfer of assets in the face of a creditor threat is automatically a fraudulent transfer. While it is true that a creditor will likely allege that the transfer was fraudulent, this is not always the case. As long as the debtor’s transfer was made for fair market value and the debtor is not insolvent, i.e. the debtor is still able to pay his or her or its reasonably anticipated financial obligations as they come due, it is likely that the transfer could not be reversed on fraudulent transfer grounds.
Bear in mind that in the courtroom, often the law is whatever the judge wants it to be or thinks is should be, so there are never any guarantees, but it is important to understand that while the best time for asset protection planning is when there is no trouble on the horizon, there are still steps that can be taken after a creditor threat arises.
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