Cases and Comments on Contracts

Asset Protection: Real & Personal Property Exemptions

by Robert V. West, MD JD FAAEM

Asset protection planning is a process that includes reorganizing how assets are held, so as to make them less vulnerable should a claim be made against the potential defendant, doctor. The asset protection plan should be designed and implemented at a time when the client has no claims pending, threatened or expected, and of course when there are no outstanding judgments. Much like a casualty insurance policy, it must be "taken out" before the "casualty" occurs. Furthermore, in the event that the insurance company or policy becomes a casualty itself, asset protection should be an integral part of every doctor's portfolio when relatively large sums of money are invested in liquid assets.

Fraudulent Conveyance and Asset Protection Planning
You can't hide assets after the fact. Fraudulent conveyance law generally protects present creditors (plaintiffs) and subsequent creditors from transfers made by a person who is, or will become within 1 year, their debtor. However, "subsequent creditors" does not include every person who becomes a creditor in the future; there is also a "future potential" class of creditors. The distinction is clarified by a Florida decision, which stated that asset transfers are permissible as to one's possible creditors, but not as to one's probable creditors. The operative inquiry is whether the client has any outstanding judgments, and whether he has any litigation or investigations pending, threatened or expected.

The fraudulent conveyance-related laws are just one part of the equation, but should not lessen the importance of the manner in which the assets are held. In many states, certain personal property is exempt from judgment creditors. Judgment creditors are people who may possess a lien on your assets as the result of a judgment they won in a lawsuit. Furthermore, your income cannot be garnished in many states, which means that you can continue to live, work, and enjoy your exempt personal property as long as you bought it in a way that was not intended to defraud creditors, or less than one year from the date of the judgment or the charging order.

The property code for every state is available on the Internet off www.findlaw.com. There you can access the respective property statutes for all 50 states. Just click on "states" and then search the property code for your respective state under exempt perosnal and real property. There you can check to see what property exemptions are available in your state. The following is what I got off the Internet for my state, Texas:

Texas Property Code

§ 41.001. Interests in Land Exempt from Seizure

(a) A homestead and one or more lots used for a place of burial of the dead are exempt from seizure for the claims of creditors except for encumbrances properly fixed on homestead property.

(b) The homestead claimant's proceeds of a sale of a homestead are not subject to seizure for a creditor's claim for six months after the date of sale.

Section 42.001. Personal Property Exemption

(a) Personal property, as described in Section 42.002, is exempt from garnishment, attachment, execution, or other seizure if:

(1) the property is provided for a family and has an aggregate fair market value of not more than $60,000, exclusive of the amount of any liens, security interests, or other charges encumbering the property; or

(2) the property is owned by a single adult, who is not a member of a family, and has an aggregate fair market value of not more than $30,000, exclusive of the amount of any liens, security interests, or other charges encumbering the property.

(b) The following personal property is exempt from seizure and is not included in the aggregate limitations prescribed by Subsection (a):

(1) current wages for personal services, except for the enforcement of court-ordered child support payments;

(2) professionally prescribed health aids of a debtor or a dependent of a debtor; and

(3) alimony, support, or separate maintenance received or to be received by the debtor for the support of the debtor or a dependent of the debtor.

(c) This section does not prevent seizure by a secured creditor with a contractual landlord's lien or other security in the property to be seized.

(d) Unpaid commissions for personal services not to exceed 25 percent of the aggregate limitations prescribed by Subsection (a) are exempt from seizure and are included in the aggregate.

§ 42.002. Personal Property

(a) The following personal property is exempt under Section 42.001(a):

(1) home furnishings, including family heirlooms;

(2) provisions for consumption;

(3) farming or ranching vehicles and implements;

(4) tools, equipment, books, and apparatus, including boats and motor vehicles used in a trade or profession;

(5) wearing apparel;

(6) jewelry not to exceed 25 percent of the aggregate limitations prescribed by Section 42.001(a);

(7) two firearms;

(8) athletic and sporting equipment, including bicycles;

(9) a two-wheeled, three-wheeled, or four-wheeled motor vehicle for each member of a family or single adult who holds a driver's license or who does not hold a driver's license but who relies on another person to operate the vehicle for the benefit of the nonlicensed person;

(10) the following animals and forage on hand for their consumption:

(A) two horses, mules, or donkeys and a saddle, blanket, and bridle for each;

(B) 12 head of cattle;

(C) 60 head of other types of livestock; and

(D) 120 fowl