Effective asset protection planning works for future, unforeseen creditors. If you have signed a personal guarantee for a lease or loan, then you have an existing creditor.
Asset protection planning, to protect you from an existing creditor, is likely to fail.
Shreya Ley is an asset protection attorney and the co-creator of the PREP Trust® and Better LLC™. She is also the co-founder of LayRoots (along with with partner in life & business – Colin Ley)
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It’s a gloomy day here in Seattle, Washington, so it seemed like the appropriate day to talk about personal guarantees, asset protection after you’ve signed a personal guarantee.
I have been getting a number of calls recently from people who have signed a personal guarantee for their lease, for their commercial property lease, and, in the current environment, they are wondering how things are gonna work out for their business in the next couple of years, and they’re looking at that three, four, five years left on their lease and wondering how they’re gonna pay it if things go south for their business.
So, they’re wanting to know what kind of planning they could do to protect their personal assets if things don’t go well with their business.
And that’s why it’s a good topic for a rainy day because asset protection is for potential future creditors. If you’ve signed a personal guarantee for a lease or a loan, then you have an existing creditor.
You’ve signed an agreement that says, basically, you’re pledging all of your personal assets, so if you are then later getting rid of those assets, you are most likely violating that agreement, but you’re also giving a court or an attorney on the other side coming after you to say this was a fraudulent transfer, a voidable transaction.
Something that the courts could undo, so give away a property to a relative, put some assets in an LLC or a trust.
Those types of actions can be reversed by the court, and those assets could then go to your creditor.
So, in an ideal world, any asset protection planning you do is before you signed a personal guarantee.
Again, when you don’t have any creditors, it’s planning for the future, for creditors that might exist that you don’t think you’re gonna have when you set up the planning, and any planning that you do do after you’ve signed a personal guarantee has a much greater chance of being reversed, of having it declared a fraudulent transfer, and all that planning will be essentially ineffective for your goals.