Ask the Expert: Asset Protection Planning

Armand Paliotta, Esquire

Hartzog Conger Cason & Neville

Question: AIG's Chairman, Hank Greenberg, is accused of falsifying the financial performance of his company. If this is found to be true he could owe substantial personal financial penalties.  In an attempt to protect himself, he transferred a substantial amount of his assets to his wife. Can he do this?  Can he get away with this?

Answer: Well, first of all, a person can at any time give away assets that he or she owns, as long as other persons or entities do not have a legitimate claim to those assets. Second, there is nothing immoral or unethical about protecting your assets from the claims of creditors. No law requires that a person leave his or her assets exposed to claims of creditors.

However, creditors (people who lend money) are entitled to receive a clear picture of the financial condition of their borrower. Creditors will also typically - in their agreement to lend - prohibit certain actions that could adversely affect their claim. Absent such provisions, a creditor still might be able to get a court to render a borrower's financial maneuvers "null and void" if the maneuvers are fraudulent.

The recently publicized transfer of assets by billionaire AIG founder Hank Greenberg highlights the importance of asset protection. Particularly, it highlights the need to protect assets well in advance of any financial crisis. In Mr. Greenberg's situation, creditors and regulatory authorities are asserting that his transfers were fraudulent and, thus, can be voided. With advanced, carefully implemented asset protection planning, Mr. Greenberg could have minimized the risk of his transfers being questioned.

Simply stated, asset protection planning involves a transfer of assets (cash, real estate or other assets) to another person or entity in a manner that makes those assets more difficult, if not impossible, to be reached by creditors.

Fraudulent transfer laws are complex and the determination of whether a transfer is fraudulent can be subjective and very factually intensive. There are, however, a few factors that are important in determining whether a transfer is fraudulent, such as:

• Was the transferor insolvent at the time of the transfer or rendered insolvent as a result of the transfer?
• Did the transferor intend to defraud a creditor?
• Did the transferor receive fair consideration for the property transferred?
• Was the transfer to an "insider?"
• Did the transferor retain possession or control of the transferred property?
• Was the transfer disclosed or concealed?
• Did the transfer take place in response to a current or threatened legal dispute or liability?

Avoiding fraudulent transfers in the asset protection planning process requires sound knowledge of fraudulent transfer laws and the avoidance of these badges of fraud. If you have substantial assets, you should concern yourself with protecting those assets. Could an unforeseen occurrence, such as a lawsuit, wipe-out the wealth you've spent years accumulating? Consult a lawyer skilled and experienced in estate planning and/or asset protection planning.