Asset Protection

HOW TO SHELTER PROCEEDS OF EXEMPT PROPERTY

How can you protect the proceeds of exempt property from creditors? Example: You sold your homesteaded home and now want to shelter the proceeds.

One excellent strategy is to directly transfer the funds from one exempt asset to another. For example, you may assign proceeds from your homesteaded home to an exempt annuity, to your creditor-free spouse, or to another safe harbor, such as a limited partnership or trust.

When a judgment creditor patiently waits for you to cash-out, use surprise. You may also mortgage the protected property and invest the proceeds into another exempt asset or some other safe harbor.

Most states automatically protect proceeds from the sale or refinancing of an exempt asset either for a specified time period or for a reasonable time. This protection remains only if the funds are segregated and do not lose their source identity.

You would then become vulnerable to a judgment creditor only during that narrow period when the funds pass from the exempt asset to another shelter, unless you directly assign these funds to your new shelter within the time period the proceeds remain protected. They are then safe continuously.