What Is The Achilles Heel Of Asset Protection?

In Greek Mythology, Achilles was the greatest warrior of Homer’s Illiad. He was invulnerable on all of his body, except at his heels, where the God’s held him while dipping him into the magical liquid that was the secret to his invulnerability. In Asset Protection, the “Achilles Heel” refers to a legal concept known as Fraudulent Conveyance. The major vulnerability of Asset Protection is found under the fraudulent conveyance laws of the United States, which are well established under the Uniform Fraudulent Transfer Act, as well as under the federal Bankruptcy Code.

Fraudulent conveyance is typically one of two possible scenarios:

1. Intentional Fraudulent Conveyance – This is a conveyance made by a debtor with an intent to delay, hider or defraud his or her creditors, or
2. Constructive Fraudulent Conveyance – This refers to a situation in which the debtor receives insufficient consideration for a sale transaction which leaves the debtor in an insolvent position and unable to pay his or her creditors. In this case there need not be an intent to delay, hinder or defraud.

What this means is that even the strongest Asset Protection Plan must not run afoul of the Fraudulent Conveyance laws. From a practical standpoint it means that you cannot set up a “convey” your assets into an Asset Protection plan if you have an intent to delay, hinder or defraud your creditors. Asset Protection is best seen as a preventative measure, not a remedial one. There is nothing wrong in setting up a plan to protect your assets from the uncertainties of an out-of-control legal system in which many lawsuits are filed with nothing more than the intent to hijack one’s assets; however, to attempt to set up a plan after you have been sued is almost never advisable, at least with respect to protecting against any existing creditors.

The bottom line: Set up your Asset Protection Plan as soon as you have assets to protect. Don’t wait until you have a scare, or worse have gotten snagged in a lawsuit. Asset Protection works extremely well, but you cannot run afoul of its Achilles Heel if you want it to really work.