Asset forfeiture refers to any form of relinquishing assets, whether property or money, due to a breach or failure to perform a legal obligation. Relinquishing assets, in some cases, is ordered by the court. Asset forfeiture is not uncommon in a divorce situation, especially if the divorce becomes complicated.
Most states in the U.S., including Wisconsin, have protective laws for the homestead during relinquishment proceedings. Homestead laws may help asset protection, by allowing individuals to protect anywhere from $30,000 to $50,000 worth of assets. However, those figures are generally less that the value of a home. Individuals who are faced with a situation where they could lose a home should be educated about the various options that are available for asset protection.
Other methods of asset protection that a person may wish to take advantage of are a limited liability partnership (LLC) or a family limited partnership (FLP). Those methods; unfortunately, may not be the best options to choose in the event that the primary residence needs protecting. However, the family home is generally protected by tax laws. Mortgage interests can be deductible and the family home is also not liable for capital gains.
By making the family home a LLC or FLP, these tax concessions may be rendered ineffective. A qualified personal resident trust is another method of asset protection that a person may consider choosing. In that case, the home ownership is irrevocably transferred into trust and the previous homeowners may now have to pay fair market value rent for living in the family home. Furthermore, a debt shield may have to be created by which most of the equity in the home is transferred by taking loans against it.
Source: DermatologyTimes.com, “Innovative techniques for protecting your home”, July 16, 2014
