DEFINITION of 'Asset Protection'

The concept of and strategies for guarding one's wealth. Asset protection is a type of planning intended to protect one's assets from creditor claims. Individuals and business entities use asset protection techniques to limit creditors' access to certain valuable assets, while operating within the bounds of debtor-creditor law.

Asset protection helps insulate assets in a legal manner - without engaging in the illegal practices of concealment (hiding of the assets), contempt, fraudulent transfer (as defined in the 1984 Uniform Fraudulent Transfer Act), tax evasion or bankruptcy fraud. Experts advise that effective asset protection begins before a claim or liability occurs, since it is usually too late to initiate any worthwhile protection after the fact. Some common methods for asset protection include asset protection trusts, accounts-receivable financing and family limited partnerships.

BREAKING DOWN 'Asset Protection'

In general, if a debtor has few assets, bankruptcy may be considered the more favorable route. If significant assets are involved, however, proactive asset protection is typically advised. Certain assets, such as retirement plans, are exempt from creditors under United States federal bankruptcy and ERISA (Employee Retirement Income Security Act of 1974) laws.

In addition, many states allow exemptions for a specified amount a home equity in a primary residence (homestead) and other personal property (such as clothing). Each state in the United States has laws to protect owners of corporations, limited partnerships (LPs) and limited liability corporations (LLCs) from the entity's liabilities.

RELATED TERMS
  1. Creditor

    A creditor is an entity that extends credit by giving another ...
  2. External Claim

    A claim against an individual that does not arise out of any ...
  3. Charging Order

    A court-authorized right granted to a judgment creditor to attach ...
  4. Business Asset

    A piece of property or equipment purchased exclusively or primarily ...
  5. Receiver

    A person appointed by a bankruptcy court or secured creditor ...
  6. Homestead Exemption

    Laws designed to protect the value of a home from property taxes ...
Related Articles
  1. Financial Advisor

    Build A Wall Around Your Assets

    Learn how to protect your money from lawsuits, creditors and other judgment proceedings.
  2. Insurance

    How You Can Protect Your Assets With Insurance

    Here's how carrying the proper levels of auto and umbrella insurance will keep your assets protected, no matter your net worth.
  3. Managing Wealth

    How You Can Protect Assets With Umbrella Insurance

    Here's why protecting your assets from litigation via umbrella liability insurance is a good idea.
  4. Retirement

    How Does Bankruptcy Affect Your IRA?

    Since 2005, money in your IRA can be protected if you are forced to file for bankruptcy.
  5. Managing Wealth

    Which Retirement Funds Are Protected from Creditors?

    While many employer-sponsored retirement accounts – including most 401(k)s – are protected against creditors, that’s not always the case.
  6. Managing Wealth

    Asset Protection for High Net Worth Individuals

    OK, you've made it. Here's how to hang onto it.
  7. Small Business

    Understanding Limited Liability

    Limited liability is a legal concept that protects equity owners from personal losses due to their ownership interest in the company.
  8. Retirement

    How To Protect Your Retirement from Lawsuits

    Getting sued is one of those things that no one really plans on. Be proactive and make sure your hard-earned retirement is safe from lawsuits.
  9. Investing

    Assessing Bank Assets: Are Your Savings Safe?

    Learn how to determine if your assets are safe or if your bank has spread itself too thin.
RELATED FAQS
  1. Are qualified retirement plans protected from creditors?

    Learn how to protect your retirement assets from creditors. Certain provisions provide for exemption of retirement assets ... Read Answer >>
  2. Is a Locked-in Retirement Account (LIRA) protected from creditors?

    Learn about how Canadian registered pension and retirement plans are protected from creditors under federal and provincial ... Read Answer >>
  3. Can a creditor seize my retirement savings?

    Whether a creditor can seize your retirement savings will depend on the type of account in which you are holding your retirement ... Read Answer >>
  4. Are my IRAs secure against possible liens?

    Your IRA is protected from bankruptcy up to $1 million. However, in all other cases, state law determines whether any protection ... Read Answer >>
Hot Definitions
  1. Five Cs Of Credit

    A method used by lenders to determine the credit worthiness of potential borrowers. The system weighs five characteristics ...
  2. Straddle

    An options strategy in which the investor holds a position in both a call and put with the same strike price and expiration ...
  3. Trickle-Down Theory

    An economic idea which states that decreasing marginal and capital gains tax rates - especially for corporations, investors ...
  4. North American Free Trade Agreement - NAFTA

    A regulation implemented on Jan. 1, 1994, that eventually eliminated tariffs to encourage economic activity between the United ...
  5. Agency Theory

    A supposition that explains the relationship between principals and agents in business. Agency theory is concerned with resolving ...
  6. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations ...
Trading Center