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To answer this question we must first understand what Asset Protection really is. In the most basic sense, Asset Protection is any action that dissuades or disallows any unwanted and unauthorized person or entity from reaching your assets. That’s really it. In that sense, Asset Protection could include:

  • Giving your assets away to a charity or person.
  • Losing your assets in Las Vegas.
  • Investing your assets in a copper mine in South America, which turns out to have no value.
  • Placing your assets in an unreachable location, like a treasure chest dropped to the bottom of the sea, or
  • Piling all your assets up and making s’mores over a roaring bon fire.

In each of the above cases, the assets would be difficult, if not impossible, to reach for anyone! The problem, of course, is that anyone includes you. In practical terms, what Asset Protection has come to be known as is slightly different than these methods mentioned above.

Legal Asset Protection is the use of legal entities and tools that place a legal barrier between an unauthorized creditor and your assets, while leaving you in the position of being able to control, use and enjoy those assets.

From this perspective all of the above options are out. What’s in is the Family Limited Partnership and its cousins like the far more powerful Asset Protection Trust. So how does the FLP really work to protect your assets?

The properly utilized FLP is a legal entity drafted under the laws of a state that statutorily does not allow a creditor to reach the underlying assets of one of the FLP members. It does this with one very special feature – The Charging Order.

Charging Order

The Charging Order is a legal concept and in the words of the Statute itself:

“A charging order constitutes a lien on the judgment debtor’s transferable interest in the partnership.”

The key concept here is lien. If all things go well, a creditor would not be able to force a distribution of the partnership assets and would be left sitting there with just a lien. This has the effect of placing the barrier we want between the assets and a creditor who is after them.

What the charging order, and the FLP in general, does NOT do is completely remove the creditor; rather it just makes them wait. The net effect is that a creditor holding a charging order is likely to come back to the negotiating table and accept an offer of settlement that is far more favorable to you than it would have been had the creditor been able to directly reach your assets.

Is this Asset Protection? Yes, it does accomplish the goal of placing a barrier, while still allowing you to control, use and enjoy those assets, at least to a point. However, it is not an ultimate barrier. If the creditor is not motivated to settle, and is willing to wait it out, they are in line to receive any eventual distributions from the partnership. In the mean time, you are deprived of your use and enjoyment of those assets. It basically creates a face-off.

So when is an FLP enough? Basically that depends on the level of protection you desire and the level of assets you are trying to protect. Our experience has shown that if your asset level is below $250,000 the FLP alone is a good strategy. When your assets begin to climb higher than that, and definitely when the reach the $500,000 mark, we have found that the deterrent effect of the FLP alone is just not enough.

The reason is obvious, the more the money, the more incentive a plaintiffs’ attorney has to either wait it out, or worse yet, attempt to break open the FLP. The later can and does happen and anyone familiar with a courtroom will tell you that judges are highly adept at finding ways around the very rules and statutes they are meant to uphold. Why? Because there are always 2 sides to every story and more than one way to read the statutory intent of a law.

For these reasons 90% of the time I do not rely solely on the FLP for real Asset Protection. While it remains a valuable entity, particularly for the consolidation and management of all the assets, when it comes to real deterrence and protection I rely on the far more powerful Asset Protection Trust, which is the key to The Ultimate Asset Protection Plan

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Pashmina Lalchandani

CEO & Co-Founder, Bar & Cocoa / Owner, Flow Simple
December 9, 2010, Douglass was a client of Pashmina’s

I’ve known Doug in many contexts, as a friend, as a client and as a business partner and he impresses me on all levels. He’s dependable, smart, generous and I wouldn’t hesitate recommending him and his law firm to anyone.
He’s the best and most ethical lawyers providing asset protection with rock solid strategies to give you peace of mind about your wealth. Straight forward, and straight talk. Doug is exactly the lawyer I want on my side. If I send someone to Doug, I know they’ll thank me for it!

Social & Solar Entrepreneur, Pan Afrikan Theorist, Translator/Interpreter,
Founder & Visionary Leader @ Afrikanpride.
March 12, 2011, Marlon E. D. J. worked with Douglass but at different companies

Doug is one of the most powerful thinker i have came across. During the short time that i have known Doug he has been a great source of inspiration. He has a simplistic yet effective and accurate way to analyze anything you bring to his attention, and then by asking you key questions he gets you to see the light at the end of the tunnel. Besides being extremely bright, he is a genuine and caring individual which is why I feel fortunate to know him. I can say without a doubt that he his the person you would want to talk to if you were in need of a person with his expertise.
Most of the lawyers out there will probably meet your needs, but if you are looking for someone to exceed your expectations and give you that wow factor, look no more he is the person for the job.

Patricia Salter

Associate Dentist at Smileology
December 1, 2010, Patricia was a client of Douglass’

I have been a client of Douglas Lodmell’s since 2001. My main concern was asset protection in this litigious society. I can sleep alot better at night knowing I have the instruments in place to protect the fruits of my labor, and that they will not end up in the hands of a slick trial attorney.

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