Asset Protection is often compared with Liability Insurance. I sometimes even get a question like:
" What liability can asset protection protect against and what can it not protect against?"
This question really highlights the difference between Liability Insurance and Asset Protection.
Liability Insurance protects against a list of specified liabilities as well as specifying the conditions in which it will apply and the restrictions and exemptions in which it will not apply.
Asset Protection on the other hand, doesn't distinguish between liabilities at all. It simply protects the assets from any liability.
While both are important, and I do recommend clients have liability coverage, Asset Protection is fundamentally different as it is agnostic regarding the type of liability.
This is not to say that Asset Protection is the cure all to any possible risk, as it still must be put in place timely, managed properly and executed with the right support and strategy. This is one of the reasons why using an experienced asset protection attorney is so critical.
It is also important to note that, specifically with respect to divorce, asset protection done by one party to a marriage after the marriage has taken place must be done very carefully. While it is possible, it is important not to mingle separate assets with community assets. Just because an asset in in one spouse's name does not mean it is automatically a separate asset. If an asset protection structure is funded with assets which are not actually the settlor's then of course the plan would be vulnerable to attack in a future divorce.
This would also be true regarding assets which were stolen or otherwise acquired illegally. It should not be expected that an asset protection structure will work to protect assets which were never really yours in the first place.
Nevertheless, when done correctly, asset protection is fully capable of protecting your assets from virtually any type of liability.
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