Asset protection is particularly important if you work in an occupation that is at a high risk of lawsuits, although any entrepreneur should consider how to preserve their assets in the event of unexpected litigation. Otherwise, at some point it may be too late to take action to guard your wealth.
Florida law forbids the fraudulent conveyance of property and assets. Therefore, asset protection must take place before creditor litigation puts this law into action.
How state law defines fraudulent transfers
A fraudulent transfer happens when someone transfers their assets to another person or entity with the intention of defrauding creditors. In Florida, there are two main types of fraudulent transfers: constructive fraud and actual fraud.
Actual fraud occurs when the person making the transfer intends to defraud, delay or hinder a creditor. This means they are aware that the transfer will make it more difficult for the creditor to collect on a debt.
Constructive fraud takes place when the buyer or party acquiring the property does not receive reasonably equivalent value in exchange. In addition, the person making the transfer is either insolvent or will become insolvent as a result of the transfer.
Prevention of fraudulent conveyances
Timing is a major factor. If you are facing financial difficulties, such as outstanding debts or pending lawsuits, it can be wise to refrain from making any significant asset transfers. This may help prevent the appearance of a fraudulent transfer.
However, if you do conduct a sale without intending to get rid of assets illegally, you should keep detailed records of all your financial transactions, including the reasons for any asset transfers. This will help demonstrate that the transfers had no intent to defraud creditors. In addition, make sure a buyer is paying the fair market value.
State fraudulent transfer laws only make it more imperative to start asset protection measures at an early date. This helps to establish that any transfers to entities such as trusts or a family limited partnership happened in good faith.
