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New judicial decisions concerning asset protection, P.2

In our previous post, we began looking at several new developments in asset protection case law the first development we noted was a judicial decision from Virginia regarding fraudulent transfers. The case at issue in that decision involved a defendant company that had transferred intellectual property rights to another company without sufficient consideration. The property apparently included domain names.

The upshot of the decision is that companies wishing to protect intellectual property without incurring a fraudulent transfer action should transfer the intellectual property rights to a new and separate company not owned by the company operating the business, or an irrevocable trust. If the property rights are held by another company, that company should be created solely for holding the rights. In addition, the transfer of the rights-which must be an actual transfer-must not be done in anticipation of litigation.

The important takeaway for our readers is that it is important to remember that courts are sensitive to the issue of sheltering assets from creditors, and that it is important to implement any asset protection planning before any claims arise.

In another decision, an Illinois Bankruptcy Court ruled that a debtor cannot protect their assets by over-paying the IRS in taxes in hopes that the IRS will shield them from creditors. In the case at issues, corporate officers of an S-corporation purposely overpaid the IRS in hopes that they could individually sue the agency to regain the overpayments. The debtor corporation was allowed to recover the extra money on grounds of fraudulent transfer.

Fraudulent transfer is one area of concern in asset protection planning among others. Like any aspect of estate planning, it is wise to gain the insight of an experienced attorney. Doing so will ensure that pitfalls are avoided and your goals are accomplished.

Source: Forbes, "New Case Law on Asset Protection," Lewis J. Saert, August 10, 2011.

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