Asset Protection in New York: Moving Assets Under One Spouse?

Moving assets under one spouse's name, as an asset protection move in New York, may prove ineffective. It poses risks, as the spouse may become liable for debts incurred by the other spouse, and creditors may pursue assets held by such spouse. This can lead to potential lawsuits, legal actions against the spouse, and negatively impact their credit score and financial stability. In the event of divorce, transferred assets may be subject to equitable distribution, potentially leading to a loss of control over the assets and increased complexity and costs associated with the divorce process. The timing of asset transfers is also crucial, as transfers made close to the onset of financial difficulties may be scrutinized, and there are statutes of limitations for fraudulent conveyance actions. Advanced planning and consideration of potential risks are necessary when considering transferring assets to a spouse.

Tenancy by the Entireties in New York

In New York, tenancy by the entirety occurs when real property is transferred to a married couple at the same time. In the context of asset protection, tenancy by the entirety is created when one spouse, who owns real propety separately, transfers the property jointly to both spouses in one deed.

Although this form of ownership provides a level of asset protection against individual creditors, as creditors of one spouse cannot attach or seize property held in tenancy by the entireties, it does not provide protection against joint creditors, debts incurred by both spouses, debts incurred by one spouse for the benefit of the family, federal tax liens, or criminal forfeitures. In addition, the transfer from one spouse to both spouses is still subject to the rules on fraudulent convevyance and can be questioned before New York courts when made within the statute of limitations.

Fraudulent Conveyances in New York

Fraudulent conveyance is defined as transfers made with the intent to hinder, delay, or defraud creditors, or transfers made without receiving reasonably equivalent value in exchange. Creditors may seek to void or set aside fraudulent conveyances, for as long as it is made withi nthe statute of limitations. In New York, the period to question fraudulent conveyances before courts is four (4) years from the date of the transaction or one (1) year after the transfer was or could have reasonably been discovered. New York courts consider various badges of fraud when determining fraudulent intent, such as transfer to an insider (e.g., a spouse or family member), retention of possession or control of the property by the transferor, concealment or secrecy surrounding the transfer, pending or threatened litigation at the time of the transfer, transfer of substantially all of the transferor's assets, absconding or disappearing after the transfer, and the transferor's insolvency or becoming insolvent shortly after the transfer. Remedies available to creditors include avoidance of the fraudulent transfer, attachment or seizure of the transferred assets, injunctive relief to prevent further transfers, and appointment of a receiver to manage the transferred assets. Defenses to fraudulent conveyance claims include good faith and reasonably equivalent value. Thus, if assets are transferred to a spouse, the transfer may be questioned and even voided if proven to be done with fraudulent intent, in fraud of creditors, and made within the statute of limitations.

Impact of Marital Status and Divorce

Transferring assets to a spouse in an attempt to protect them from creditors may backfire in the event of a divorce. Assets transferred to a spouse may be subject to equitable distribution, potentially resulting in the loss of those assets. Transferred assets may be used as leverage in divorce negotiations, affecting the overall settlement. If a spouse receiving transferred assets incurs debts or liabilities, those assets may be at risk despite the original intent of the transfer. Transferred assets may be mismanaged, dissipated, or lost by the receiving spouse, undermining the purpose of the asset protection strategy. Strained marital relationships or mistrust may result from the transfer of assets, increasing the likelihood of divorce. If the transfer is deemed fraudulent or improper, it may be undone by the court during divorce proceedings. Tax consequences of transferring assets, such as gift taxes or capital gains taxes, may create additional financial burdens. The emotional and psychological impact of transferring assets to a spouse may lead to resentment, guilt, or feelings of powerlessness. Unintended consequences may arise if the receiving spouse passes away, requiring careful estate planning to ensure the proper disposition of the transferred assets.

Alternatives to Moving Assets to a Spouse

Irrevocable Trusts

Trusts can be powerful tools for asset protection, allowing individuals to transfer assets to a separate legal entity managed by a trustee for the benefit of designated beneficiaries. By placing assets in a properly structured irrevocable trust, individuals can shield those assets from creditors, lawsuits, and other legal claims.

When assets are transferred to an irrevocable trust, the grantor relinquishes control and ownership of the assets, effectively removing them from their estate. This can protect the assets from creditors, as the grantor no longer has a legal claim to the assets. Irrevocable trusts can be designed with specific provisions, such as spendthrift clauses, to further enhance asset protection.

When establishing a trust for asset protection, it is crucial to work with an experienced trust attorney like us to ensure that the trust is properly structured, funded, and managed. Trusts must be created and administered in compliance with applicable state and federal laws, and the timing and circumstances of asset transfers must be carefully considered to avoid fraudulent conveyance issues.

LLCs and Business Entities

Limited Liability Companies (LLCs) and other business entities, such as corporations and limited partnerships, can provide asset protection by separating personal assets from business assets and liabilities. By transferring assets to an LLC or other entity, individuals can limit their personal liability and protect their assets from creditors . LLCs offer flexibility in management structure and taxation, and can be used to hold a variety of assets, such as real estate, intellectual property, and investments. However, LLCs and business entities must be properly formed and maintained, with adequate capitalization and adherence to corporate formalities, to avoid piercing the corporate veil and exposing personal assets to liability. This includes maintaining separate business and personal accounts, not commingling funds, and ensuring that all business transactions are conducted through the LLC's accounts.

Retirement Accounts

Retirement accounts, such as 401(k)s, IRAs, and pension plans, offer built-in asset protection under federal and state laws. The Employee Retirement Income Security Act (ERISA) provides robust protection for employer-sponsored retirement plans, such as 401(k)s, by shielding them from creditors in most cases. IRAs also receive protection under federal bankruptcy law up to a certain amount, with varying levels of protection depending on the type of IRA and applicable state laws. Some states, like New York, offer complete protection for IRAs in bankruptcy proceedings. Maximizing contributions to retirement accounts not only helps secure financial stability in retirement but also provides a layer of asset protection. However, retirement accounts may still be subject to certain creditor claims, such as federal tax liens, qualified domestic relations orders (QDROs) in divorce proceedings, and judgments for criminal acts or willful and malicious injuries. Additionally, early withdrawals from retirement accounts may result in tax penalties and a loss of asset protection.

Selling an Asset

Selling an asset, such as real estate, vehicles, or investments, can be an effective way to protect the value of the asset from creditors and legal claims. By converting the asset to cash or other liquid assets, individuals can more easily transfer the proceeds to protected accounts or entities, such as retirement accounts or offshoreor irrevocable trusts. Selling an asset may also help avoid the appearance of fraudulent conveyance, as the sale is typically an arms-length transaction for fair market value. However, selling an asset may result in tax consequences, such as capital gains taxes, and may not be feasible or desirable in all situations. Additionally, the timing of the sale is crucial, as selling an asset after a creditor claim arises or a lawsuit is filed may be viewed as a fraudulent conveyance. Properly documenting the sale and using the proceeds for legitimate purposes, such as paying off debts or investing in protected assets, can help demonstrate the legitimacy of the transaction.

If you are looking for ways to protect your assets, we at the Law Offices of Albert Goodwin are here for you. We have offices in New York City, Brooklyn, NY and Queens, NY. You can call us at 212-233-1233 or send us an email at [[email protected]](mailto:[email protected]).