If you want to protect yourself financially, you must find a way to protect your attachable assets. Fortunately, there are ways to do so.
TL;DR (Too Long; Didn't Read)
Attachable assets are those that a court, at a creditor’s request, may seize via a writ to pay a debt.
Assets and Judgments
If you file for bankruptcy or divorce or are sued and lose the case, your attachable assets are vulnerable to such judgments. Certain types of assets, such as 401(k)s, are usually exempt from attachment, but that’s not true of most assets unless you have placed those assets in an irrevocable trust or another type of arrangement that protects them from your creditors. Attachable is an append antonym, since the appendable definition means “remove.”
Delinquent Debtors Definition
A delinquent debtor is someone who has not paid a debt by its due date or the end of the grace period established in a loan or repayment agreement, according to the Bureau of Fiscal Service, a department of the U.S. Treasury. If you are a delinquent debtor, you can expect creditors to go after your attachable assets.
Foreign Asset Protection Trusts
There are ways to protect your attachable assets from creditors, although it takes some planning ahead of time. Irrevocable asset protection trusts, with terms that cannot change, have long been established in offshore locations to protect assets from potential creditors. However, the IRS carefully scrutinizes such asset protection trusts. The IRS notes that, under this arrangement, “the taxpayer supposedly transfers all of his assets to it including his home and other assets actually located within the United States.” In reality, however, the courts may examine the economic substance of such a transaction. Should the individual continue living in his U.S. home and otherwise control the assets placed in the trust, the assets may prove attachable and be seized to satisfy creditors. The IRS notes that not all such trusts are formed with the intention of abusing tax collection. It does warn that trusts marketed as reducing federal income taxes or employment taxes are the type in which the court may proceed with attachment.
U.S. Asset Protection Trusts
Some states have established asset protection trusts that are available to nonresidents. These trusts have certain requirements, including irrevocability. The trust’s trustee – the person or entity, such as a bank – overseeing the management of the assets must either live in the state if an individual or have a license in the state if a financial institution. Distributions are only permitted at the trustee’s discretion, and some assets and all trust documents and administration must be located in that state. Such trusts must have a spendthrift clause, which means the trustee is directed specifically on how to distribute funds to a beneficiary. That may include limits on the amount of funds the beneficiary may receive at one time or payment only for basic expenses.
Other Asset Protection Options
Besides creating a trust, there are other ways to protect your attachable assets. These include maxing out the amount you put into qualified retirement accounts, declaring a homestead if your state permits it (which offers some creditor protection) and purchasing umbrella insurance policies to protect yourself beyond your standard homeowner’s insurance policy. Look into your state’s laws regarding life insurance and annuities, as these are not attachable assets in some states.
A graduate of New York University, Jane Meggitt's work has appeared in dozens of publications, including PocketSense, Zack's, Financial Advisor, nj.com, LegalZoom and The Nest.