DEFINITION of 'Equity Stripping'

The process of reducing the overall equity in a property in order to avoid creditors. The theory behind equity stripping is simply that by reducing your interest in a given property, thereby reducing any equity, creditors will not go to great lengths to include the property in any claims.

BREAKING DOWN 'Equity Stripping'

Equity stripping is one of the simplest asset protection methods and can also be one of the most successful. By giving another party a claim against a property, owners can retain control over the cash flows and use of the asset while making the property unattractive to creditors attempting to administer some type of legal judgment. The most common forms of equity stripping are spousal stripping and home equity lines of credit (HELOC).

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