There’s a good probability you’ll get sued if you drive a car, own real estate, operate a business, have a spouse or business partner, or engage in high-risk activities. You may be the cause of a car accident. It’s possible that a delivery person will trip and fall on your front doorstep. You could have to go through a divorce. Your business partner may be sued for a variety of reasons, and you may be named as a co-defendant without your knowledge. Unfortunately, as we work to recover from a damaged economy, our society is becoming more litigious. Even frivolous lawsuits, which have little or no merit, can be costly to defend.
However, there are simple and inexpensive ways to shield yourself and your family from legal action.
First and foremost, ensure sure you’re properly insured. If your net worth is a million dollars, you should have at least that amount in personal umbrella liability insurance. Umbrella insurance premiums are typically between $200 and $300 per million dollars of coverage. Of course, an umbrella policy is meant to supplement rather than replace standard homeowner’s and auto insurance.
You are responsible for any lawsuit brought against a joint owner if you have joint bank accounts or own real estate with an elderly parent, sibling, child, or friend. If Mom hits a pedestrian while driving to church and you are a joint owner of her savings account, the entire account might be confiscated in a lawsuit, and you could lose your inheritance. A renter who is harmed on the property could lose the rental property you and your brother inherited as joint tenants with right of survivorship.
Many people have unofficial real estate investment partnerships or other commercial partnerships. You and your spouse are alter-egos in this informal structure. His blunder becomes your worst nightmare. A lawsuit brought against your partner will very definitely be brought against you as well, potentially wiping out both your personal and corporate assets. A sole proprietorship family business exposes all of your personal assets.
Consider everything you own as an enemy target: your home, your business, your bank accounts, stocks, bonds, and mutual funds, planes, boats, cars, and expensive artifacts. As an asset protection attorney, my mission is to construct a fortress that the enemy cannot breach. The idea is to divide all of your assets into distinct entities that you do not own as an individual.
Irrevocable trusts provide good asset protection, but I prefer to use a limited liability company (LLC) most of the time. An LLC is low-cost and easy-to-maintain, and it may keep creditors at bay with a well-drafted operating agreement.
The member of the LLC in my example plan will be a revocable living trust. While a living trust won’t protect you from creditors while you’re alive, it will protect your heirs from the difficulties and expense of probate when you pass away, and it may help you avoid or reduce estate taxes.
Your hot assets (high-risk assets like real estate and the family company) will be separated from your cold assets (such as stocks and bonds, which are unlikely to cause a lawsuit.) For optimal safety, each piece of real estate (a hot asset) will be owned in its own LLC. Then, as another hot asset, we’ll form an LLC to own your company. Your cold assets, such as cash, equities, bonds, and mutual funds, could be pooled and held under a single LLC. Although these investments carry some risk, they are unlikely to result in a lawsuit.
The protection of charge orders is a significant advantage of LLCs over other asset protection vehicles. A charging order is a judgment creditor’s lone recourse under Arizona law. A charge order, simply put, is a lien placed on the LLC’s assets. When a creditor attempts to attach distributions from the LLC, the manager of the LLC has the option of refusing to make distributions. The dispute between the creditor and the debtor may result in a positive settlement for the LLC.
Creditors do not have access to all assets. IRAs, annuities, and life insurance are generally creditor-protected. Homeowners in Arizona can also benefit from the homestead exemption, which protects up to $150,000 in equity from creditors.
What states protect annuities from creditors?
There are laws in existence in a few places that allow annuities to shield you from creditors and frivolous lawsuits. Texas and Florida are two good examples of these states. Both have special statutes in place to protect your annuity and life insurance assets in today’s litigious society.
Can creditors take your annuity?
Many annuities are excluded (protected) from creditors under federal bankruptcy law or state law, but not all of them are. The ability to invoke the exemption is dependent on the annuity’s specific qualities, making this area of law difficult. If you have an annuity and are considering filing for bankruptcy, you should get professional assistance because making a mistake can be costly.
What assets are exempt from creditors in Arizona?
- Homestead Exemption – In Arizona, you can protect up to $150,000 in equity in your principal residence from creditor claims. 33-1101 (Arizona Revised Statutes). The exemption is granted automatically.
- Household Goods – Under Arizona law, essential household goods worth up to $6,000 are protected.
- This includes furniture and accessories, as well as appliances and personal belongings.
- 33-1123 (Arizona Revised Statutes).
- Personal Property – Arizona law protects many personal items, including (1) $300 in cash, (2) $500 in clothing, (3) $400 in musical instruments, (4) domestic pets, (5) a wedding ring up to $2,000 in value, (6) books up to $250 in value, (7) a bicycle up to $1,000 in value, (8) a firearm up to $1,000 in value, (9) a computer up to $1,000 in value, (10) a car up to $6,000 in value, and (11) a wheelchair.
- 33-1125 (Arizona Revised Statutes).
- A separate exception protects “tools of the trade,” such as websites and marketing tools, up to $5,000.
- 33-1120 (Arizona Revised Statutes).
What is exempt from debt collection in Arizona?
Exemptions for Individuals and Families A single-family home, a condo, a townhouse, or a mobile home are all examples. 150,000. 33-1101 of the A.R.S. Personal belongings (Note: A husband and wife can double the maximum dollar value) Furniture, appliances, and other home items.
Are annuities protected from Judgements?
The uncommon benefit of life insurance and annuities is that they are immune to most judgements and liens. While rules differ by state, insurance proceeds are frequently regarded as non-collectible assets. They also avoid probate as a matter of policy.
Can annuities be sued?
Fixed annuities are commonly purchased for two reasons. If they choose that option, their principal is preserved, and they receive a fixed rate of return and lifelong income payments. However, Bob Richards of Learn Bonds lists numerous more benefits of fixed annuities in his article “Other Protections of Fixed Annuities.” Some of these benefits were completely unknown to me. In the event of a bankruptcy, those with bad credit may lose money from their stocks, bonds, or mutual funds. In most states, however, creditors cannot touch your annuity money or attach it to a lawsuit. Hopefully, you will not have such poor credit, but if you do, this is a little-known benefit of fixed annuities.
Fixed annuity products are classified as insurance, which implies that your fixed annuities are eligible for state insurance benefits.
Fixed annuities protect you from market fluctuations by guaranteeing your principle and interest.
Your fixed annuity profits are tax-deferred, which means you won’t have to pay taxes on them until you start receiving payments.
Everyone who might be looking, including the IRS, has access to your money.
Fixed annuities, as previously stated, are immune to creditor or other third-party litigation.
The restrictions for this last benefit vary by state, and if your annuity is a 401k or IRA investment, federal rules apply.
Because a fixed annuity is a contract with your heirs, there are also benefits to your beneficiaries after your death.
Fixed annuities are not subject to probate upon death, which is a nice benefit if you’ve ever had a bad experience with probate courts.
Your money goes directly to your beneficiary, avoiding the hassles and additional legal fees that come with probate.
Another advantage is that, unlike other provisions in wills, fixed annuity beneficiaries cannot be challenged.
Whatever happens after you die, your decision about who will be your beneficiary will stand.
How do I protect money from creditors?
Several sorts of vehicles can assist you in protecting your assets against litigation or creditors.
“There are many different ways to skin a cat, and there are many different instruments being utilized to preserve assets,” says Blake Harris, a Florida attorney specializing in asset protection.
How do I hide money from debt collectors?
There is virtually little you can do to lawfully hide your assets from a creditor once a creditor obtains a judgment against you in a U.S. court. The judgment creditor has a number of options available to him or her. They employ ways to locate and assess the worth of your assets. Then they determine which ones can be used to fulfill your obligation.
Your creditor will most likely file a Motion for Examination of Judgment Debtor after winning a lawsuit against you. This allows him to interrogate you about your holdings. You must answer truthfully since you will be under oath. If you’re caught lying, the judge who handed down the decision might hold you in contempt. You may face a big fine or even jail time if you did this.
You can, however, lawfully protect your assets from a U.S. court ruling. You must be willing to venture offshore for this. Each offshore jurisdiction is a separate country with its own government. Many countries have asset protection laws that favor foreign trust settlors and/or LLC founders in general. One of the only methods to shield your assets from a U.S. court judgment is to set up an offshore LLC and/or asset protection trust.
What personal property can be seized in a Judgement in Arizona?
A judgment lien can be connected to the debtor’s real estate in every state, which includes a house, condo, land, or other similar property interest. In some areas, judgment liens can also be placed on the debtor’s personal property, including as jewelry, art, antiques, and other valuables.
Only real estate can be connected to a judgment lien in Arizona (meaning a house or similar property).
How does a creditor go about getting a judgment lien in Arizona?
The creditor files and records a judgment with the county recorder in each Arizona county where the debtor owns property now or may own property in the future to attach the lien.
How long does a judgment lien last in Arizona?
In Arizona, a judgment lien is linked to the debtor’s property for five years (even if the property changes hands).
Keep in mind that a creditor’s ability to collect under a judgment lien in Arizona is influenced by a number of factors, including a fixed amount of value that won’t be touched if the property is the debtor’s primary residence (known as a homestead exemption), other liens that may exist, and any foreclosure or bankruptcy proceedings. If things become too convoluted, you should consult an experienced Arizona bankruptcy and debt attorney to help you resolve any lien issues.
Can a creditor take my house in Arizona?
With so many new laws going into effect this fall, it’s easy to overlook House Bill 2325, which received little media coverage but might have a big influence on debtor and creditor rights. The personal property exemption statutes are amended by House Bill 2325. Although modest revisions to the exemption statutes have occurred over time, the last time the Arizona Legislature overhauled the exemption statutes was in 1983. To say the least, updating our state’s exemption legislation was long overdue. This Article will briefly explain (1) what a “exemption” is, (2) what state exemption statutes protected before H.B. 2325, (3) the changes made by the Legislature through H.B. 2325, and (4) potential future changes that should be considered to understand why and the impact H.B. 2325 could have on judgment debtors and creditors.
Certain property is shielded — i.e., exempt — from execution by a judgment debtor’s creditors by state law.
As a result, even if a creditor wins a judgment, the creditor is prohibited from enforcing the judgment on exempt real and personal property.
Sections 33-1121 through 33-1133 of the Arizona Revised Statutes mainly safeguard personal property under state law.
Those statutes exempt from “process” a list of goods deemed worthy of protection by the Legislature.
Those safeguards enshrine the doctrine established by the Supreme Court of the Arizona Territory even before Arizona became a state.
Wilson v. Lowry, 52 P. 777, 779, 5 Ariz. 335, 341-42; Wilson v. Lowry, 52 P. 777, 779; Wilson v. Lowry, 52 P. 777, 779; Wilson v. (1898) (“The courts have a well-established policy of liberally construing those humanitarian and beneficent provisions of the law that protect particular property from execution for the payment of debts.”) The state has an interest in protecting families, particularly defenseless children, from poverty and ensuring that they have enough shelter and education.”).
Many state law exclusions are useless in modern collection practice since a creditor is not interested in collecting, for example, a person’s household belongings to pay a debt.
A creditor will usually resort to real estate to settle a judgment by recording the judgment against the property.
In that instance, a debtor’s homestead exemption of up to $150,000 in equity protects the debtor’s home significantly.
33-1101 of the A.R.S.
A creditor may also attempt to seize a debtor’s bank account or wages.
Arizona Revised Statutes section 33-1131, which specifies that 75 percent of a debtor’s wages are protected from garnishment, is perhaps the most commonly used exemption used outside of the bankruptcy context to protect a debtor’s livelihood.
Bank account protection is less extensive, with only $150 (or $300 if married) being excluded from procedure.
33-1126(A) of the Arizona Revised Statutes (9).
In summary, while state exemptions are certainly relevant in ordinary collection actions, and an attorney should be aware of the restrictions imposed by those exemptions, most state personal property exemptions — protecting ordinary household goods and the like — are usually superfluous because creditors prefer to satisfy judgments with more “reliable” assets, such as land and wages.
State exemptions affecting personal property, on the other hand, become crucial for a debtor in bankruptcy.
The Court appoints a trustee in a chapter 7 bankruptcy, who is responsible for overseeing the debtor’s estate.
In essence, the trustee gathers all of the debtor’s nonexempt property, sells it, and then distributes the proceeds to the debtor’s creditors on a pro-rata basis.
A debtor may frequently seek to “buy back” the value of his or her nonexempt property from the trustee if he or she wishes to maintain all or part of it.
As a result, the quantity of nonexempt property a debtor has becomes a key issue in bankruptcy, because the amount of nonexempt property determines how much the debtor must come up with in order to maintain important things.
Prior to the passage of H.B. 2325, Arizona’s exemption statutes were a source of frustration for bankruptcy practitioners.
The structure of the domestic goods exemption was one of the major difficulties.
The list of household products exempted under Arizona law was relatively narrow, with some significant omissions.
“One kitchen and one dining room table,” “one couch,” “two beds for the debtor plus an additional bed for each dependent,” and “one radio alarm clock” were among the items exempted.
Commonplace, required items like everyday dishes and utensils, a microwave, a desk, a computer, or a food freezer were conspicuously absent from the list.
As a result, bankruptcy debtors — many of whom were of extremely low means — were frequently forced to try to acquire enough money to “buy back” the value of necessities that were not included on the exemption list of household goods.
The exemption statutes were also out of date, in addition to being unduly precise to the detriment of some debtors.
A typewriter was exempt from the law under Arizona Revised Statutes section 33-1125(7), but a personal computer was not.
Similarly, section 33-1130(2) of the Arizona Revised Statutes recognized “implements of husbandry” as a “tool of the trade,” but not more modern company assets like client lists or intellectual property like a website domain.
H.B. 2325, to the credit of Arizona’s legislature, corrects many of the flaws in the present exemption statutes.
First, the exemption for domestic products has been completely reimagined.
The list of specific items was scrapped in favor of a monetary cap on all “household goods.”
It also incorporates a recent update: consumer electronic device protection.
The new section 33-1123 has the following provisions:
Household furniture and furnishings, household goods, including consumer electronic devices, and household appliances used by the debtor or a dependent of the debtor and not otherwise specifically prescribed in this chapter are exempt from process if their total fair market value does not exceed $6,000.
The elimination of the list of specific household goods gives debtors more freedom to determine which household things are most important to them and to provide legislative protection for those items.
However, as with any new law, the phrasing of this exemption could result in extra lawsuits.
The statute does not define what constitutes a “home good,” which, although offering flexibility, could lead to misuse by debtors arguing that any “good” placed within the house is exempt under the statute.
Along with the modification to the domestic goods exemption, H.B. 2325 expands the list of protected articles to include a personal computer with a value of up to $1,000.
33-1125(7) A.R.S. (2013).
To the list of commercial “tools of the trade” that are protected, it also includes “telephone numbers, client or customer contact information, or marketing tools, such as websites, domain names, or any other intangible work product.”
33-1120(1) A.R.S. (2013).
In addition to the significant changes made by the Legislature through H.B. 2325, the Bill also raises the value of a number of frequently utilized exemptions.
The vehicle exemption has been raised from $5,000 to $6,000 in value, the bank account exemption has been raised from $150 to $300, the tools of the trade exemption has been raised from $2,500 to $5,000, and the wedding ring exemption has been raised from $1,000 to $2,000 in value.
For a married couple, all of those figures would be multiplied by two.
33-1121.01 of the A.R.S.
The expansion in the tools of the trade exemption is especially essential for self-employed debtors since it increases the likelihood that they will be able to keep enough assets to continue operating their small business.
In summary, H.B. 2325 gives debtors more protection in terms of the types of property that can be exempted from judgment creditors or a bankruptcy trustee, as well as the monetary amount of property that can be exempted.
Despite the progress made by H.B. 2325, there are several flaws that need be addressed in future exemption statute changes.
The first is that the recent modifications did not affect Arizona Revised Statutes section 33-1124.
“All food, fuel, and provisions really provided for the debtor’s individual or family use for six months are free from procedure,” according to the Act.
That statute raises only a few difficulties.
First, while Arizona courts do not appear to have defined the term “provisions,” one Arizona bankruptcy judge observed that “other jurisdictions have concluded that the phrase “provisions” refers to food or food stuffs that a debtor can establish are actually being or will be eaten by his family.”
Does Arizona allow asset protection trusts?
Self-settled asset protection trusts are not permitted in Arizona, but there is an option. When a trustor transfers ownership of an asset to an irrevocable trust, which is maintained by a trustee for the benefit of one or more beneficiaries, an asset protection trust is formed.
