Asset Protection for Your Residence

April 24th, 2014 at 10:06 AM

For most of us, our home is one of our most valuable assets, as well as most vulnerable assets to creditors.

Here are some proven ways to protect your home:

1. Homestead Exemption–This is a statutory exemption available in most states to protect a certain amount of the value. The amount varies from state to state as do the laws to avail oneself of this protection. Essentially, if a creditor forces the sale of your home in execution of a judgement, they receive the residue after selling costs, the mortgage, and the “homestead exemption” amount. In states such as Texas and Florida, citizens enjoy an unlimited homestead exemption which makes it extremely difficult for creditors. If you want to take advantage of the exemption, it is essential that you acquire a general understanding of your state’s law, and consult with an asset protection professional.
2. Tenancy by the Entirety–If your State allows, you can title your personal residence as “Tenants by the Entirety”. The benefit of this strategy is if one spouse is sued, the property cannot be attached; if a husband is in a terrible lawsuit, its not fair that the wife lose the house as the lawsuit had nothing to do with her. Again, please check your State law for the use of this planning technique.
3. Equity Stripping–This strategy involves placing liens on your home and stripping the equity out with the loan amounts. Therefore, a potential creditor will view your home differently to satisfy their judgement. The best loans are the legitimate mortgages, as it is difficult for a creditor to challenge in valid lien holder, and attempt to step in front.
4. Domestic Asset Protection Company (DAPT)–Essentially, you title the residence in this type of Trust, and the longer its in place the better protection it affords. Please see an asset protection attorney to discuss this strategy further. Also, review my prior Blog article on Cooke Island Irrevocable Trusts in the asset protection category.
5. Title Home in Lower-Risk Spouse–In some cases, one spouse may have a lower risk profile as compared to the other as relates to lifestyle and business. In that situation, its may be better to title the residence in the lower risk style spouse. For example, in most states, if the husband is a business owner who incurs debts, the couple can enter into an agreement that certain assets will be the wife’s separate property. As always, proper planning must be initiated from the outset, such as when signing the mortgage and titling the asset. Its critical to consult with an attorney that understands the law in your state.
6. Umbrella Insurance–This type of insurance covers a variety of events; but not–fraudulent, criminal, and reckless or negligent actions. The cost on average is $300-$500 a year for 1 to 2 million of coverage. Legal structures are one way to implement asset protection, however, an umbrella insurance policy should always be a consideration.

Therefore, when it comes to protecting your residence, I’ve considered 6 options in this briefing—there may be other strategies depending on your particular situation.