Ask the Lawyer: Is asset protection improper?
Q: It has dawned on me it might not be a bad idea to take steps to protect our assets – to make them unavailable to others who might sue or make claim. Is there anything improper about doing so?
-D.R., Tustin
A: Legitimate asset protection is legal, and may well be recommended in any given situation. Note, however, use of the word “legitimate.” Steps such as putting assets into a trust, a private retirement account, or a limited liability company, may be prudent. There are asset protection specialists you can (and should) consult.
Where asset protection raises a specter of impropriety is if you know or have reason to know of a claim against you, and then try to hide the assets from the creditor. This is known as fraudulent conveyance, and includes conduct intended to prevent the creditor from reaching your assets by transferring, assigning, conveying, gifting or otherwise placing them in the name of a third person. Fraudulent conveyance can be a crime not just a civil wrong.
Q: We got sued with some others who were found to have 90 percent fault. My husband and I were tagged with just 10 percent liability. Are we still on the hook for the total judgment if the others are unable to pay?
-F.H., Gardena
A: The good news is you can seek recovery from the others if you have to pay more that your allotted share of the judgment, but the bad news is you could be hit with the whole amount due. This is under the doctrine of “joint and several liability,” which means that multiple parties are liable for the same event or act, and responsible collectively for the total found owing. If just one party has assets, he or she may have to pay the entire amount. As a result (going back to the first question above), this is another reason why legitimate asset protection can be a prudent step to take.
Q: Does a corporation really protect me from liability? The company owes the debt, and the creditor can’t make me pay it, right?
-C.D., Carson
A: One of the advantages of a corporate entity is that it shields owners from personal liability, so long as the corporate entity is formally and properly run. This means there is maintenance of the basic corporate records (eg., Minutes, Annual Meetings, Resolutions); the corporation has been adequately capitalized for the kind of business it operates; you do not commingle your personal and corporate accounts; you make sure to maintain real separateness between you and the entity; and bottom line that the corporation is not a sham. If the corporation is found to be your alter ego (for all intents and purposes the corporation and you are one and the same), you face the real possibility of personal exposure.
Ron Sokol is a Manhattan Beach attorney with more than 35 years of experience. His column, which appears on in print on Wednesdays, presents a summary of the law and should not be construed as legal advice. Email questions and comments to him at RonSEsq@aol.com