Asset Protection in California

A California resident who has done no planning keeps less from a judgment creditor than a resident of most states. The home is protected up to a cap that depends on the county, an employer’s retirement plan entirely, and most of a paycheck. An IRA is protected only as far as a judge finds it necessary for retirement. California ranks 38th of the fifty states for creditor protection.

The protection stops at cash. A bank or brokerage account has no exemption beyond a small automatic floor. An IRA above what a court allows can be taken, and either spouse’s debt can be collected from a married couple’s entire community estate. Tenancy by the entirety does not exist here, and neither does a self-settled trust the courts must honor. An offshore trust can hold what the exemptions leave out.

What California Protects Without Any Planning

Without any planning, a Californian already keeps a home, most of a paycheck, an employer retirement plan, and an unmatured life insurance policy away from a judgment creditor, each within a limit the statute sets. An LLC interest is protected only in part. A creditor takes whatever falls outside those limits.

How California’s Homestead Exemption Works

A California homestead is exempt from a forced sale to pay a money judgment, up to an amount that depends on the county. The exemption is the greater of a statutory floor or the county’s median single-family sale price from the prior year, up to a statutory ceiling. Both figures have been adjusted for inflation each January since 2022. No California agency publishes the adjusted amounts, so the current figure is not a number anyone can look up, and the homestead chart lists the statutory band.

The exemption applies only against a money judgment. A lender foreclosing its own mortgage, a contractor’s lien, and a federal tax lien are outside it. Above the exemption, a creditor can force the sale of the house through a court order and take the equity that is left once the exemption is paid out.

Residence is the test, not title, and the amount is fixed at the lien date outside bankruptcy and the petition date inside it. A recorded homestead declaration keeps a later judgment lien off the exempt equity and protects a voluntary sale’s proceeds for six months, and California’s homestead rules for a judgment debtor turn on that recording and the lien’s date.

Wages and Bank Accounts

California protects at least 80 percent of a paycheck from a judgment creditor. Since September 1, 2023, a wage garnishment takes no more than the lesser of two figures: 20 percent of disposable earnings, or 40 percent of what exceeds 48 times the minimum wage. Where a local minimum wage runs higher than the state’s, the local one is used. A support order and a state tax debt are outside that limit.

The exemption follows the paycheck into the bank for thirty days and no longer. On the thirty-first day a paycheck is ordinary money, wherever it sits, and what a California bank levy reaches is whatever the account holds when the bank is served.

A second rule protects a floor amount in a bank account without any claim of exemption. The garnishment chart shows every other state’s rule beside California’s.

The floor does not save the other spouse’s own account. A creditor may levy an account held in the spouse’s name alone, with no court order, by giving the bank a sworn statement that the account holder is the debtor’s spouse.

Are IRAs Protected from Creditors in California?

Only partly. An IRA is protected only to the extent a judge decides the owner will need it in retirement, while an employer’s plan is protected in full. California exempts a private retirement plan, and a profit-sharing plan designed and used for retirement, with no dollar limit. An ERISA plan is exempt without the debtor even filing a claim, as a California appeals court held in Coastline JX Holdings v. Bennett (2022).

How much of an IRA the owner needs is a judge’s finding, made on the owner’s own evidence. The exemption has a deadline measured in days from the notice of levy. The IRA chart classes California as partial protection because of that support test. California’s IRA exemption stops at the amount the judge allows, and the balance above it goes to the judgment. A rollover traced from a genuine employer plan keeps the plan’s full exemption, and a plan built to dodge a creditor gets none.

Leaving California does not help. In Bagby v. Davis (2026), a debtor who had relocated to Florida was refused Florida’s unlimited IRA exemption against a California levy. A California court applies California’s exemptions in a California collection action, whatever the debtor’s current address.

How AB 2837 Changed Retirement Account Protection

Assembly Bill 2837, in force since January 1, 2025, expanded California’s retirement exemption. It brought 403, 414 and 457 accounts into the statute. It required a court to exempt the income tax a debtor will owe when plan money is applied to a judgment. And it set a floor under the support test for personal debt. For that debt, the protected amount can be no lower than the IRA cap the federal Bankruptcy Code sets, which can be added up across every retirement account the debtor holds. Employer plans remain exempt in full.

The floor reaches only personal debt as the judgment-renewal section defines it, so a malpractice, business or fraud judgment gets the bare support test, and no court has yet construed the floor. A support judgment still reaches even an employer plan, and a creditor collecting from a periodic IRA payment takes no more than a wage garnishment could. Most states exempt a rollover IRA only as an IRA; California’s tracing rule is the exception.

Life Insurance and Annuities

California exempts an unmatured life insurance policy without a claim. The loan value is exempt only on a claim, and only to $17,525 for each spouse, or $35,050 for a married couple, a figure the Judicial Council resets every three years. Benefits from a matured policy are exempt only as far as the debtor and family need them for support.

The statute names annuity policies as well, and that phrase is narrower than it looks. It keeps a life insurance policy exempt where that policy carries annuity features, and it leaves an ordinary annuity outside the exemption altogether. A single-premium contract paying a guaranteed stream is an investment, and buying one to shelter cash protects nothing.

Cashing in a policy makes things worse. In Bagby v. Davis (2026), the court held that a policy the owner voluntarily surrenders is treated as matured, so the cash is protected only under the support test the owner must prove. The exemption exists to keep a creditor from forcing a surrender; an owner who cashes in on his own steps outside it.

LLC Interests and Reverse Piercing

A judgment creditor of a California LLC member gets a charging order first. A charging order is a lien the court places on the member’s transferable interest, and it sends whatever the company distributes to the creditor instead. The statute makes that order the creditor’s only route to the interest, then gives the court two more powers over it.

It lets the court appoint a receiver over the distributions, on proof that the member has obstructed collection, with the power to make the inquiries the member could have made. It also lets the court order the interest sold once it is shown the distributions will take unreasonably long to pay the judgment off. The charging order chart rates that statute the weakest in the country, and no California court has decided whether a single-member LLC gets charging-order protection at all.

The larger risk sits outside the statute. In Curci Investments v. Baldwin (2017), the Court of Appeal held that a creditor with alter-ego facts and no adequate legal remedy may pierce a California LLC in reverse and reach the company’s own assets. Charging orders against California LLCs leave that exposure open at any member count, and a spouse’s minority interest in an intact marriage adds no innocent member.

An LLC still keeps business debts away from personal assets. The defense to a reverse-piercing claim is a company run as a real company: real capital, separate books, a signed operating agreement, and a business kept apart from its owner’s personal affairs.

What California Leaves Exposed

A California judgment creditor can reach cash and brokerage accounts above the automatic deposit floor, paid earnings after their thirty days, and every dollar of an IRA a court decides the owner does not need for retirement. A rental property is reachable, and so is a second home or a business run outside an entity. The surplus from a lender’s foreclosure is reachable too when only the automatic homestead applies. A 529 college savings account has no exemption from a levy in California, as the Court of Appeal held in the 2016 O’Brien decision.

Marriage widens the exposure. Either spouse’s debt is collectible from the entire community estate, and the other spouse’s own accounts can be levied on an affidavit that the two are married. Insurance cash value above the loan-value figure, a surrendered policy’s cash, a matured policy’s benefits beyond what support requires, and an ordinary annuity are exposed as well.

None of this changes when the debtor moves. A creditor collecting a California judgment in a California court gets California’s exemptions, and a debtor who has relocated to a state with better ones cannot bring them back with him.

Exemptions in a California Bankruptcy

A California bankruptcy debtor cannot use the federal exemptions. California has opted out of them by statute, so the choice is between two California lists. The first is the ordinary set, with the county-median homestead. The second is a bankruptcy-only set, chosen in place of everything else. It has its own residence exemption, a much smaller one, and the only general wildcard California offers. The wildcard is a fixed sum plus whatever part of that residence exemption goes unused.

A homeowner who elects the bankruptcy-only set gives up the homestead for a residence exemption a small fraction of its size. The set therefore fits a renter or an owner with no equity, and almost never a homeowner. Spouses who file together elect one set. The Ninth Circuit held in In re Talmadge (1987) that they share a single set of exemptions rather than taking one each. A spouse filing alone needs both spouses’ written waiver of the ordinary set, unless the two were living apart and owned no home together.

The election is made in the bankruptcy, not before it. In In re Reaves (2002), a debtor had claimed the ordinary exemptions against a levy before filing. He could still elect the bankruptcy-only set once he filed. The statute bars using both sets at once; it says nothing about using one after the other.

Community Property Creates Dual-Direction Creditor Exposure

In California a judgment against one spouse is collectible from the entire community estate. Family Code section 910 says it “is liable for a debt incurred by either spouse before or during marriage.” Which spouse manages the property makes no difference, and neither does the other spouse having had nothing to do with the debt. A debt one spouse runs up after the date of separation is that spouse’s own.

Two things stay outside the creditor’s reach. The other spouse’s own separate property cannot be taken for the debt, unless it was for the necessaries of life. That spouse’s earnings escape a debt the debtor brought into the marriage, but only while they sit in an account the debtor cannot touch. A judgment lien recorded before a divorce stays on the house the other spouse receives in the division. The planning tool is a transmutation, a written agreement changing community property into one spouse’s separate property, and every transmutation is subject to the fraudulent-transfer law.

Where one spouse commits a tort while acting for the community, the community estate pays that judgment first. A creditor of one California spouse can also levy an account held in the other spouse’s name alone on a sworn statement of the marriage.

California has no tenancy by the entirety. It is one of the nine community-property states, and a couple cannot protect a jointly titled account the way a couple in an entireties state can.

Why Self-Settled Trusts Fail in California

A Californian who settles a trust for himself gets no protection from a spendthrift clause. The Probate Code makes the clause invalid against the settlor’s creditors while leaving the trust itself valid. Where the trustee may pay the settlor at its discretion, a creditor may reach the maximum the trustee could pay, up to the settlor’s share of what went in. A revocable living trust is reachable to the full extent of the power to revoke.

The one carve-out is a clause letting the trustee reimburse the settlor for the income tax he owes on the trust’s income. That clause alone does not make him a beneficiary, and no creditor reaches trust money through it. Losing the spendthrift clause does not cost the settlor an exemption. In In re Witwer (1992), a physician’s one-man profit-sharing plan was no valid spendthrift trust, because he controlled it, yet the plan stayed fully exempt as a retirement plan designed and used for retirement.

A trust someone else creates for a Californian is different. The clause holds. A general creditor can still reach distributions already due, in full, and 25 percent of future payments, less what the beneficiary needs for support. That is the Supreme Court of California’s reading in Carmack v. Reynolds (2017).

A domestic asset protection trust formed under another state’s law does not cure the problem for a California resident. That kind of trust protects reliably only for a settlor who lives in the trust state. The suit is filed where the settlor lives. A California settlor answers to a California court, which can apply California law to the trust whatever the document says. Only two decisions have let such a trust hold against a creditor, and both came from a court in the state that wrote the statute.

The one decision on a California resident’s out-of-state trust ran the same way. In United States v. Huckaby (2026), a federal court in California applied California law to a trust that called itself a Nevada spendthrift trust, because the asset was a California home. It declared the government’s judgment lien enforceable as to the debtor’s half share.

Bankruptcy adds a rule of its own. A bankruptcy trustee has ten years to reverse a self-settled trust’s funding, on proof of the debtor’s actual intent to defeat a creditor.

Fraudulent Transfers and California’s Criminal Statutes

A California creditor who finds an asset already moved has a civil claim under the Uniform Voidable Transactions Act, which took effect in California in 2016. The act reaches a transfer made, in the statute’s words, “with actual intent to hinder, delay, or defraud any creditor of the debtor” (Civil Code section 3439.04).

It also reaches a transfer made for too little in return while the debtor was insolvent or left unable to pay. The court can undo the transfer, attach the asset in the transferee’s hands, freeze further transfers, put a receiver in charge of it, or let the creditor execute against it directly.

A money judgment runs against whoever received the asset first, or the person the transfer was meant to benefit. A later transferee who paid value in good faith keeps the property. A claim lasts four years from the transfer, or for an actual-intent claim one year from its discovery if that is later. In every case it ends seven years after the transfer.

The court in PGA West Residential Association v. Hulven International (2017) called the seven-year limit, in its words, “a substantive statute of repose that completely extinguishes a right or obligation.” The court added that the limit cannot be tolled and “is not subject to forfeiture” when a defendant fails to raise it. The four-year and one-year periods are ordinary limitation periods, and a later decision refused to read the repose holding into them.

Exempt Property and the Voidable Transactions Act

Property that is exempt is not an “asset” under the act (section 3439.01), so a transfer of it injures no creditor and stands. A transfer of the home is not voidable where the mortgage and the homestead exhaust its equity. The court’s finding that the debtor meant to defraud changes nothing, and a judgment lien still attaches to the interest the debtor kept.

The same rule cuts the other way for a planner, because trading non-exempt money for exempt property is never an exchange for value, and the case then turns on intent alone.

The calendar alone decides nothing. A transfer signed after suit was filed survives when the debtor got full value and kept no strings, and one made years before any claim falls on proof of intent.

When a Fraudulent Transfer Is a Crime

California makes an intentional fraudulent transfer a crime, in three Penal Code sections. A debtor who sells, conveys, or conceals property meaning to defeat his creditors commits a misdemeanor, and a felony only where the property is business stock in trade worth over $250. A separate section reaches property that is the subject of a pending lawsuit.

A third, Penal Code section 531, reaches only people who were party to the conveyance, including a party who later defends it in court as honest and a party who resells what was conveyed to him. California is one of the states whose penal codes reach a fraudulent transfer, and the one prosecution on record dates from 1936.

The Lawyer’s Own Exposure

A lawyer faces two kinds of exposure. In two attorney-discipline cases, the Supreme Court of California called a lawyer’s own part in a scheme to defeat creditors a section 531 crime. It suspended one lawyer and disbarred the other; no criminal prosecution of a lawyer under the section is on record. On the civil side, the act gives a creditor no direct claim against a helper who never took the property. A conspiracy or aiding-and-abetting claim may still be pleaded, and Berger v. Varum (2019) allowed a common-law claim for the delay a transfer caused.

A conspiracy claim against the debtor’s lawyer cannot be filed until a court enters an order allowing it, under Civil Code section 1714.10. In Optional Capital v. Akin Gump (2017), claims aimed only at the lawyers’ litigation conduct were struck under the anti-SLAPP statute and the litigation privilege. In Aghaian v. Minassian (2020), a claim aimed at the transfer itself, against the son who signed the deeds and received nothing, went forward.

The Offshore Trust for What California Leaves Exposed

The assets California exposes are the liquid ones: cash, brokerage accounts, the IRA balance a court would not allow for support, and the community estate of a married couple. An offshore trust is built for those. The Californian moves them into a Cook Islands trust, where a licensed trustee holds the accounts under Cook Islands law.

A judgment from an American court has no effect there on its own, so a creditor after the money must start over before a Cook Islands judge, who applies Cook Islands law. There the creditor has to prove fraud to the criminal standard of proof, beyond a reasonable doubt, and file within short limitation periods. Creditors have been putting those rules to the test since the late 1990s. No creditor has recovered assets, so far as any record shows, from a Cook Islands trust that was properly set up and run.

The limit is the settlor himself. A California court keeps jurisdiction over a resident and can order him to bring trust assets home, but in a properly structured trust the decision to distribute rests with the trustee.

Community property complicates the funding. Most of what a married Californian owns belongs to the community, so the funding spouse first takes the trust assets as separate property by a written transmutation. That agreement is a transfer like any other, and the fraudulent-transfer law reaches it on proof of intent whenever it was signed.

Offshore planning fits a Californian past $1,000,000 in total assets, or past $500,000 in liquid assets the exemptions do not cover. Legal fees are a flat $15,000 for the trust, or $20,000 if an offshore LLC is part of the structure. Add the trustee’s first-year charges and the total to establish is about $21,000, or $26,000 with the LLC. Later years cost about $5,000 in trustee fees, $6,000 with an LLC, and the CPA adds $2,000 to $3,000 a year.

Income tax does not change. The trust is a grantor trust, so its income is reported on the settlor’s own return. The settlor’s CPA prepares the annual filings, Form 3520 and Form 3520-A, and an FBAR when the trust’s foreign accounts, added together, pass $10,000 in a year. The filing work belongs to the accountant.

A Cook Islands trust can still be formed once a lawsuit is pending, and often is. The deed includes a Jones clause, which permits the trustee to pay that particular creditor when stated conditions are met, narrowing the fraudulent-transfer risk and giving the settlor an answer to a contempt motion. Planning that late brings more contempt exposure and a weaker bargaining position than planning ahead of a claim.

California’s four-year window to attack the funding transfer still runs. A bankruptcy trustee still has ten years to avoid that transfer on proof of actual intent, and the difference is enforcement. A trustee abroad cannot be compelled to hand the assets back.