Business owners will do much to protect themselves and their assets when in trouble. Sometimes its not a well thought out plan and ends up not only not producing the results desired, but puts themselves into a worse situation then they were in previously and thus can be a step backwards instead of a defensive move that makes sense.

Here is a classic error, all to frequently done. The business owner creates a new entity, perhaps an LLC, now easily done on the internet in a few minutes, and being the sole owner he transfers capital, contracts, inventory, whatever he has that is valuable into this new entity believing he will protect the assets from harms way as the IRS or Bank may either not find the new entity or even if they do find it, the assets will be protected because it is a separate entity not guilty of the breaches he has suffered in his offending company were the assets previously resided. That’s the typical plan.

I will not discuss the legal aspects of this issue as I leave that for you and you lawyer. I will however suggest that as a business strategy used to protect your assets from harm, liquidation, seizure etc, this is never a good idea.

If the new entity is deemed an alter ego of your self and your primary corporation which owes the money, if not done properly, and if done merely for the purpose of hiding assets and tricking the creditor, the “new” company wil be deemed the same as the old company from where the assets came from and it all will be collapsed into one offending entity, with no additional protection whatsoever.

So whats the point? Please resist this temptation. I see it way to often and thus must warn you of such a deficient strategy. A transfer of assets has to have a legitimate business purpose and be done at fair market value, to be provided the full benefits and protection that is offered.

There are many legal requirements that I will leave for you to discuss with your lawyer, however, suffice to know that “they” are onto this thinly veiled procedure, and if attempted and discovered they can deem it an alter ego company which will be liable for the same debts you tried to hide your assets from in the first place. So nothing other then your bad faith will come out of this exercise.

Another form of the same silliness is called a fraudulent transfer and occurs when a business man moves assets into his wife’s name ( or any ones name) for no consideration, believing he will either hide the asset or preserve it from creditors attempts to liquidate, not realizing that such a transfer can be easily undone by the courts and will result in the asset being returned for liquidation as opposed to hidden successfully.

This is, another legal issue which which yo should discuss with your lawyer but one in which many business owners fall trap to and must understand that as a basic business business strategy this will not work out and will be undone. Transfers for less the adequate consideration and transfers to immediate family members are all very suspicious and typically do not result in the desired protection. In fact the IRS code says that any transfer to immediate family members is or can be deemed “fraudulent on its face” irrespective of consideration paid.

Check it out before you do this, there are better ways and you are unlikely to achieve what you are trying to accomplish. Talk to your lawyer on this one, before you act. Do not waste your time and effort in this pursuit. It will not work out as planned. Call for some assistance. 413-549-2966.