These are just some of the bad asset schemes some people find recommended to them on the internet. Perhaps one of the worst asset protection schemes is to transfer all of your assets to your spouse. "If I'd only listened to you," is the common wail of an individual who has gone against the advice of an asset protection lawyer and instead transferred all their assets to their spouse. Those assets become just as vulnerable in the hands of your spouse as they were in yours once claims are made against your spouse or once your spouse is added as a defendant to a lawsuit. Spouses also have a tendency to file for divorce and then walk away with all or most of the assets. Keep in mind that the divorce rate in the U.S. is still close to 50%. That's right. One in two marriages end in divorce. We would suspect the percentage is higher among marriages where one spouse has transferred all the asset to the other. Transfers to spouses are also easily attacked as fraudulent transfers to avoid the claims of creditors, especially if the transfer was within six years of the creditor's claim. Equity stripping is another bad asset protection scheme. This scheme consists of mortgaging one's real estate and transferring the money offshore. Then when a creditor comes after a debtor, any judgment they obtain is subordinate to the security interest of the bank. While equity stripping might have been possible in the days of easy money, banks have already seen this happen to too many of their home mortgages. That's why banks aren't making loans like they used to and why banks are failing every weekend when the latest bank closures are announced. A third bad bit of advice by asset protection attorneys and advisors is to buy lots and lots of insurance - liability policies, umbrella policies, all with the highest possible policy limits and every possible endorsement. An equally stupid bit of advice is to stop paying for any insurance, whatsoever. Why is it a bad idea to pay for millions of dollars in insurance coverage? The premiums alone will cost a fortune. But even more importantly, insurance invites lawsuits rather than discouraging them. A plaintiff lawyer looks for three things - liability, damages and insurance. If insurance isn't there because all the assets have been protected offshore or in a family limited partnership, for instance, most lawyers won't consider taking a case. But if there is a large insurance policy, and an umbrella policy on top of that, well, the case is golden. Lawyers will be falling all over themselves to take on a case with that much insurance. If you keep any insurance, after protecting your assets, and we do recommend you keep some insurance, it should be with medium sized policy limits. Keep in mind, first you have to make sure you have protected your assets. Once that has been accomplished, and have a medium sized policy limit, an insurance company will probably offer that policy limit or some portion of it to a Plaintiff's lawyer upon being convinced of the merits of a case against you. However, when they do, they will require that the Plaintiff sign a full release of all claims against you. An insurance company must ask for this because it is their obligation to protect you. Once that release is signed, the claim goes away and any lawsuit for it must be dismissed, with prejudice (which means it can never be filed again by that particular plaintiff). If the merits of the case against you are valid and the potential damages suffered by the plaintiff are large, a plaintiff lawyer may still take on the case hoping to be able to find either another insurance policy or assets whose protection scheme can be attacked. A small policy of insurance, such as $15,000 may not satisfy the plaintiff's palate. However, a policy for $100,000 just might satisfy a plaintiff, whereas a policy for $1,000,000 may just keep the lawsuit going until the plaintiff obtains a judgment for some portion of or in excess of the policy limits. This is your worst scenario because a judgment in some states is good for ten years and can be extended for additional years after that. Remember the story of goldilocks and the three bears. You have to pick the bowl of soup, or in this case the size of the insurance policy, that is just right. Not too small, not too big, but one that is just right. A fourth bad asset protection scheme contains the recommendation that an individual should have a corporation act as general partner of a family limited partnership, with the individual owning the shares of stock in that corporation. This is a bad suggestion because those shares of stock can be attached by a creditor who then takes control of the corporation and control of the assets in a family limited partnership. Single member limited liability companies (LLC's) are an equally bad idea, and even worse than having a corporation own one's assets. With a sole member LLC, it's not difficult for a plaintiff to pierce the LLC's veil, just as corporate veils are pierced since the sole member controls the LLC completely. Once the membership interest is taken by a creditor, all the assets in the LLC can be seized by the creditor as well. A common mistake of individuals who set up their own asset protection schemes is to obtain off-the-shelf documents, drafted by lawyers in different states than their own or by unknown parties in foreign countries such as Panama for sale on the internet, hoping that one size fits all and that a family limited partnership drawn up in North Dakota will work just as well as one in Nevada or Wyoming or that an offshore trust for use in England will work just as well as one in the Cook Islands. To compound the problem that results from the adage, "a little knowledge is a dangerous thing," many individuals who attempt their own asset planning will set up the asset planning documents, such as a family limited partnership or trust and then fail to transfer their assets into their estate planning entities. At that point they may have the worst of all worlds. They have paid excessively for entities that don't fit their needs or protect them or which were created for use in unfavorable jurisdictions, and they may even be paying annual maintenance fees or local state taxes on a yearly basis with their assets are still in their name and vulnerable to lawsuits. In compliance with IRS requirements, we must advise you that any U.S. federal tax advice and any analysis of bad asset protection schemes contained in this informational article is not intended to be used nor is it published in order for it to be used and you may not use it for the purpose of avoiding penalties or fines under the Internal Revenue Code. It is not intended to be used nor is it being published in order to promote, market or recommend any specific transaction, tax-related matter or estate planning tax scheme to any party.