The first asset you ought to protect is your primary residence, the place you call home. Many times the fear of losing one's home forces you into making a legal settlement even if the lawsuit has no merit or is not even legitimate.
Attacking attorneys always conduct an 'asset check' before deciding whether to sue someone. If there are no visible assets in the potential defendant's name, or the visible assets have no 'attachable value' meaning they can't place a judgment lien on the asset because it shows no equity, they lose their enthusiasm for the case knowing they won't be able to collect anything. If you own a home (or any piece of real estate) with equity, you're a target for a lawsuit or an audit.
Lawyers know that if they can threaten your home, you will come quickly to the settlement table.
With any asset protection strategy, timing is everything. Any strategy must be in place long before you're involved in a lawsuit, dispute, arbitration, or audit. Every state has some form of the Uniform Fraudulent Transfer Act that limits or prohibits any attempt to conceal assets or otherwise defraud a known creditor. If you're in the middle of a lawsuit with a trial date set two weeks away, there's only a little we can do for you. Settle the case and give us a call. You'll be ready next time.
Any investment real estate you own can just be transferred directly into a properly-shielded Nevada corporation or LLC, but we advise our clients that they may want to protect the equity, but keep their primary residence in their name for the following reasons:
1. The only tax break for most people is the mortgage interest deduction associated with their primary residence. To qualify, the residence must be in your name and you have to live there. Or the residence can to be in the name of a single-member LLC that you own.
2. You can sell your home every two years and retain $500,000 (for married couple, $250,000 for single person) in capital gains without paying any taxes, so long as the house is titled in your name, or titled in the name of a single-member LLC that you own.
3. Some states have a generous Homestead Exemption that provides state-sanctioned asset protection for some or all of the equity in your home. Florida, Texas, Kansas, South Dakota, and Iowa have 100% Homestead Exemptions. Some other states have partial homestead exemption. Again, the house must be in your name, or the name of your revocable living trust, or perhaps in the name of your single-person LLC to perfect the Exemption. Living trusts have no asset protection.
4. It's always good to have a decoy. Give the lawyers and other attackers something to shoot at. . . . let them see your house. You've got to live somewhere. You can better protect your home via use of a properly prepared lien to capitalize your FLLP or LLC using the home equity as collateral with a negatively amortizing note in which some interest accrues and some is paid.
They can see the home but they can't attach a judgment to it or do anything to get it. The lien legitimately capitalizes your partnership or LLC so they cannot claim fraudulent conveyance.
You can capitalize your Nevada corporation or LLC with the amount of your equity. However if you are sued within 2 years of placing this lien, the attacking attorney may charge fraudulent conveyance because of the timing.