Properly Transferring Assets To Spouse and Children

When one spouse foresees potential legal problems and possible lawsuits, one of the first asset protection steps considered is transfer of all non-exempt assets held in the name of the vulnerable spouse to the non-threatened spouse or to children. If not done properly, this type of simplistic asset protection planning can be disastrous.

When a prospective debtor transfers title of assets to another family member the debtor loses legal control over the asset transferred. The recipient has the legal right to spend or transfer the assets, and the assets are exposed to the recipients own creditors. If a parent wants to give assets to a minor child the preferred method is making a gift under the uniform gift to minor act where the parent acts as trustee over the asset for the minor’s benefit. These assets are considered the child’s property and not exposed to the parent’s creditors (except under fraudulent transfer theory) even though the parent remains on the title as trustee.

Transfers from a vulnerable spouse to his non-debtor spouse are best made as transfers to both spouses as tenants by entireties. The entireties assets are exempt from either spouse’s creditors (again, except fraudulent transfers) but the debtor spouse retains some control over the asset. Transferring assets to one’s spouse alone exposes the assets to the recipient spouse’s creditors or jeopardizes the assets in the event of marital problems.

Last updated on May 22, 2020

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