Is it Really Possible to Bulletproof Assets from Lawsuits?

Factual Questions
1

I’ve looked into Jay Mitton’s “Total Asset Protection”, which claims to protect your assets from lawsuits, liens, levies, divorce, etc.

Does it really work? If so, doesn’t this give some folks a way to abuse the system?

For example, I suppose OJ Simpson is laughing at the million dollar judgment against him.

What about a tax cheat living in a mansion. Can the IRS take it away from him?

Or someone who takes out a bunch of loans, maxes out her credit cards, and puts the proceeds into a “bulletproof” structure. How would the creditors get their money back?

I’m not planning to do anything like that, but it would be nice to sleep at night knowing my assets are protected.

2

To really answer this question, one needs really specific examples. The OJ example, for one, only applies to certain people. In a sense, I would agree that some people can be bulletproof, but the extent and the practicality behind it really doesn’t make it an option. For example, to be really bulletproof, you can’t be in the jurisdiction of the lawsuit and your assets can’t bein the United States (just to be safe). How practical is that? That’s like saying I’m lawsuit proof in France. Good for me, I haven’t been to France in 8 years.

It depends on what the assets are and what is protecting them (i.e. laws). OJ’s pension for example, is judgement proof from the lawsuite, but I’m willing to bet it isn’t judgement proof from the IRS (few things are).

Probably. But, he still has to pay taxes and his assets are probably open to other types of seizure.

Probably. IIRC, the bankruptcy laws were changed recently to allow people over a certain income to make them cash in their house to a certain value. IANATaxLawyer. The old law allowed you to keep your house because they didn’t want to put you out on the street. Likewise, you could probably “hide” your assets by giving title (and thus control) to your corporation, your relatives, etc. This just really adds new complications and doesn’t really solve the underlying issue. For instance, if you owe money, and you hide your assets in your corporation, you might be forced to sell so many shares to pay off your debt that you relinquish control of your assets.

I would like to see what this “bulletproof” structure is. The only real bulletproof way is to remove oneself, and all assets out of the jurisdiction of suit to a place that doesn’t honor extradiction treaties. However, if one’s actions are gregarious enough, it won’t stop the US gov’t from entering and retrieving such person located in a foreign country, even a friendly neighbor.

3

My understanding of his system is that he uses Limited Partnerships. Although it wasn’t suggested, I suppose you can base it in Nevada, where it doesn’t get unwound.

If someone tries to take the asset, they get a Charging Order. The CO cannot take the assets, but it can take income. But in a LP, the general partner can decide not to disburse any income to the party being sued.

The claim is that opposing lawyers will run away if they see this and even the IRS can’t take the assets.

4

An ex-brother-in-law, to hide assets that he should have been using for his child support payments, bought an expensive boat and put it in the name of his girlfriends teenage son. When he turned 18, he split, taking that boat with him! We all laughed about it.

5

I’m not licensed in Nevada, but I’m unaware if Nevada has different business organization laws than the rest of the nation (which are all pretty much in line). If my friends and I put a limited partnership together, we each have unlimited liability, but the other partners are shielded from my bad acts. Oh, and this is not legal advice, and I last worked with these business organizations issues like 10 years ago.

I’ve heard of this bullshit before. It’s not bulletproof. It relies on the other lawyers to be lazy. If someone can find a cheap enough lawyer (or a lawyer severely pissed enough with a couple of hours of free time) he can continue to file suit after suit to go after you. It’s just a matter of time and filings.

The basic order of business is to use what is commonly called a Family Limited Partnership. There are two partners (you need at least 2 people to form a partnership). The General manager and usually they make a trust the other partner. The trust owns like 99% of the assets while the General Partner owns like 1%. Sometimes, they go a step further, and they make the 1% owner a corporation (while the corporation owns 1% of the assets, they make 99% of the decisions).

Either way, there is still exposure. If it is a corporation holding the other 1% (any type of corporation), it is a simple matter of suing the person individually for their shares in the corporation. Once the shares/stock are seized, then you can release the rest of the assets from the FLP. If it is a person operating on his own, then it becomes a little bit tougher, because there will be two lawsuits at work: 1) suing the person individually; and 2) causing the asset to be broken up so that the suing party can get its 1%. A sufficiently pissed off lawyer will cause a house to get sold to get his money owed. Then, the lawyer can put a garnishment on all the guys wages and any assets that fall under his name. This might require a third suit.

6

Thanks for the interesting reply. I believe their recommendation is to put the owner of the shares of the holding corporation as the FLP (it is not in the individual’s name). Would doing that make it bulletproof?

7

Look, there’s no such thing as “bulletproof”. If you have assets and owe money, courts can seize those assets to pay your creditors. Now, there are schemes to make your assets hard to discover and convoluted to unravel. A maze of holding companies and corporations and partnerships with weird interlocking ownerships would make it harder for someone to seize your assets because first they’d have to figure out what you really own.

That doesn’t make your assets immune from seizure, it just makes it a pain in the ass to seize your assets, and attorneys and accountants charge by the hour, at some point it doesn’t make economic sense to try to unravel the maze for a small amount of money.

Or you could go the other way and just not have any assets except cash. Get paid in cash, pay for everything in cash, and it’s really difficult to get that money. Except the people who do everything in cash find it impossible to resist avoiding paying taxes on that cash, so they almost invariably end up as tax frauds.

8

Let’s go with a simple example. Suppose I have a savings account with some money. I get sued and lose so the lawyer goes after my money and soon I no longer possess the money in my bank account. I agree this can easily happen.

Now suppose instead, that the owner of the savings account is my FLP. The general partner is my LLC. The stock of my LLC is held by my FLP. No maze, just two legal entities and myself. Jay Mitton claims if I get sued and lose, the other party doesn’t get my money. The court issues a charging order, but my FLP need never give up the asset (savings account money), nor the income from the asset. Furthermore, he claims Tax Law 77-137 says they get a tax bill for the income that they never receive, which motivates them to undo the charging order.

If my entities are based in Nevada and cannot be unwound, how would this hypothetical lawyer actually get any of my money?

9

Yes, but if the LLC owns the FLP and the FLP owns the LLC, then you don’t own either, right?

10

Short answer: yes. I don’t technically own either the FLP nor the LLC.

I’ll admit I’m not fully knowledgeable on this topic, but my understanding is the FLP owns everything. The LLC manages but doesn’t own anything. And since I am the director of the LLC, I can control the assets through the LLC.

Can something force me to disburse the assets back into my name?

11

[naive questions] Wouldn’t whoever sued you just collect whenever you eventually disburse the assets back to yourself?

Also, in many states it is fraud to create a shell corporation for the sole purpose of shielding your personal assets. It is what Goldman sued OJ for in the shadow of the latest book deal. Is the contention that this isn’t true in Nevada? [/naive questions]

12

Yes, but if you don’t own the LLC, then why do you get to be director of the LLC?

13

You’ll have shares in the LLC making you the director, or whatever. You can’t be part of the LLC (ownership/equity structure) without shares. Those shares are open to suit.

The FLP will more than likely require that there is exist a GP (typically). Each partner is liable for their own actions.

Like I said, it’s just a matter of time. There is probably stronger protection in trusts, but like I said, you have to be willing to give up control of that money to someone/something else.

14

Right. Meaning, you can’t be director of the LLC unless you own part of it. So you DO own the LLC.

15

Hmm, good point regarding the director of the LLC.

Suppose it was a C Corporation and I was the CEO. Does a CEO have to own shares of the corporation they head up?

(…to answer Richard Parker, it’s only fraud if you do it after you are sued. So, the legal structures need to already be in place. And yes, they can collect whatever you eventually disburse, so it’s a waiting game. Because of 77-137, they will be paying taxes every year to wait you out, so they will be unlikely to want to continue waiting. After a certain time, the statute of limitations comes into play and they must renew the charging order to continue to pay taxes on money they never got.)

16

From what I’ve seen, the really difficult asset protection schemes to get around all involve a high degree of trust: you basically give your assets to someone else on a nod and wink that they’ll support you. Risky, of course.

17

Technically, no, the CEO doesn’t necessarily have to own shares in his own company. But, the corporation cannot do anything without a board of directors. If you’re making decisions for the board, you’re defacto on the board of directors. If you’re treating the corporation like your own personal till, the court will take the corporate protection away, and the people suing you will be able to pierce the corporate veil.

18

Wait, why would they continue paying taxes every year on money they never got? I’m no tax expert, but I could imagine a tax law which says you have to pay taxes on money from a judgement even if you haven’t collected it yet, even if it sounds screwy. But you don’t pay taxes on the same income every year, you would either pay taxes on the income from the judgement on the year you were awarded it or the year you collected it.

And you don’t have to own any shares in a corporation to be the CEO of the corporation. But the board of directors of a corporation decides on the CEO of the corporation, and the shareholders decide on the board. So who are the shareholders? The partnership? If you’re the majority shareholder in the corporation you can make anyone you like CEO of the corporation including yourself. But if you aren’t a shareholder in the corporation then you have no say in who the CEO is, and therefore can’t make yourself CEO.

Of course, you can give away ownership of the corporation to some trusted person on the understanding that they’ll make you CEO and while they’ll be the owner you’ll have total control over the assets of the corporation. But as Princhester notes, once you’ve given ownership of the corporation away, then the person you gave it away to now owns it. They have no legal obligation to allow you to continue to control the assets of the corporation.

So yes, you can control a corporation without owning it. But that’s only on the sufferance of the legal owners. If you’re not the legal owner, then you’re dependent on the goodwill of the legal owner. And if you’re the kind of guy who goes to these kinds of extreme lengths to defraud your creditors, well, you’re probably not the kind of guy who inspires lovingkindness in your fellow man.

19

mazinger_z: As I understand it, the corporate veil has never been pierced in Nevada.

Lemur866: Apparently, tax law 77-137 is a weird law. The govt likes to collect its taxes, even if a person never receives monies. And yes, the shareholder is the FLP as stated in posts 8 and 10. My name wouldn’t appear to “own” anything. The legal owner of everything in the example is the FLP as a legal entity.

[edit follows]: I wonder if anyone here (perhaps a lawyer?) has any personal experience with FLPs… Are they no big deal to brush aside, or would you run away screaming if you encountered one because there is no way to get at the asset within it?

20

Yes, but even if in fact the government gets to collect taxes on a judgement, they don’t get to collect taxes again just because you didn’t actually get the money. They might get to collect taxes whether you collect your judgement (or might not, I’m not a tax expert), but suppose I get a judgement against a creditor for $10,000. That’s $10,000 of income, I might be liable to pay taxes on it whether I have the money in my hands or not, that $10,000 judgment against my creditor is an asset I have. Although, I’ve already likely booked a $10,000 loss from that creditor, so the judgement likely isn’t profit, but never mind.

OK, so I’ve got that $10,000 judgement, the IRS demands their 30%, so I have to come up with $3000 to pay them, but my creditor has read this book and I don’t collect this year. So I’m out $3000, but I can still collect that $10000. But if I collect next year I don’t pay taxes on that $10000 because I’ve already paid taxes on it. And I certainly don’t owe another $3000 if I don’t collect, and I certainly don’t owe $3000 every year I don’t collect until I collect. Anyone who says differently is a con artist. I either owe taxes on the judgement money when I’m awarded it or when I collect, which way doesn’t matter, but I don’t owe more and more taxes when I don’t collect.

Lastly, it seems the idea is that there’s a partnership that owns a corporation, and the corporation owns the partnership, and you make yourself director of the corporation and so you control everything without owning anything. Except, if the partnership owns the corporation and the corporation owns the partnership, how exactly do you fit in again, to make yourself director of the corporation? If you don’t own the corporation you don’t control the corporation and can’t make yourself director of the corporation. If you don’t control the corporation you don’t control the partnership. If you don’t own the partnership you don’t control the partnership, and if you don’t control the partnership you don’t control the corporation. You don’t own any of it and so you don’t control any of it.

This idea is as dumb as telling the creditors that the pile of money I have under the mattress isn’t owned by me, no one owns that money, but it just so happens that I can control that money and spend it how I like even though I don’t own it.

Thing is, SOMEONE owns that money, and if it turns out that no one has a good claim on the money it reverts to the government.