LLCs are becoming more popular and are fast replacing LPs. We almost always use LLCs to title non-residential real estate and to operate businesses but we still prefer LPs to title ‘safe’ liquid assets, particularly when their owners have a taxable estate. The LP has a long track record for protection and, in some states, provides superior protection over the LLC. But there are many tax, financial planning, regulatory and other considerations when you choose an entity. So a comprehensive plan for a client may include a number of different entities – S and C corporations, LPs, LLCs, trusts, and so forth.

Many practitioners prefer to use an FLP instead of an LLC for estate tax reduction. This is because FLPs are ‘tried and true’ and have a plethora of case law to support their efficacy. However, it is possible to structure an LLC like an FLP for the purposes of estate tax reduction. There is no case or statutory law that would prohibit this. At the same time, LLCs have not been as battle-proven in court as has the FLP.

To make certain an LLC is taxed like an FLP, it should be structured like an FLP. Namely, the company should have limited members (a ‘member’ is the LLC’s equivalent to a partner) and managing members, and it should be taxed as a partnership. It should also have all the characteristics of an FLP.

With the more battle-tested track record of the FLP, one might ask: Why would anyone wish to form an LLC instead of an FLP? An LLC has some other benefits that an FLP does not. We can mention three: First, the LLC may exist perpetually (LPs typically may only exist for 30 years). Secondly, the LLC enjoys limited liability for managing members as well as limited members. Remember, the general partner (manager) of an LP has unlimited liability. Thirdly, after the death of the partner, an LLC may elect to be taxed as a C or S corporation. An LP must use partnership taxation without exception.

A limited liability company (LLC) is a hybrid between a corporation and limited partnership and it features the advantages of each. LLC managers have no personal liability for the debts of the LLC. This compares to officers and directors of a corporation. However, general partners of an LP are personally liable for the partnership debts. LLC membership interests have the same protection as do LP interests. The LLC member’s creditor has only the same charging order remedy.

Because proper planning turns the charging order from a creditor remedy to a shield against creditors, any entity to which a charging order may apply is called a ‘Charging Order Protected Entity’ or COPE. COPES include; limited partnerships; limited liability partnerships; limited liability limited partnerships; or limited liability companies (in some jurisdictions, only multi-member LLCs have charging order protection).

Corporations are not COPES. As we have previously said, a corporate shareholder comes under creditor attack, that creditor may seize his shares of stock for the amount of the outstanding debt. If the shares seized exceed 50 percent of the company’s voting shares, the creditor could then vote to liquidate the company, and seize his share of the company assets upon liquidation. You can see why the vulnerability of corporate shares to creditor attachment makes the corporation a relatively poor protective vehicle for personal assets. This inability to seize COPE interests is what makes these entities so desirable for creditor protection.

A partnership definitionally requires ‘two or more partners.’ However, a corporation or LLC owned by the individual can become the general partner, and the individual personally, or through his living trust, may be the limited partner. We then have two owners. We have many similar organizational options.

Usually, spouses transfer most of their assets to the FLP. The spouses, as general partners, would share control. They may own  their limited partnership interest personally or through their respective living trusts, or through other types of trusts. This arrangement provides excellent creditor protection, retained control, probate avoidance, and potential estate tax savings. Any other trust or entity can be limited partners(s). You can see that the FLP can be structured in many different ways.

The short answer is that a limited partnership interest cannot be claimed by the debtor-partner’s creditors. The creditor can only obtain a charging order which entitles the creditor only to whatever profit distributions are made to the debtor-partner. But this is usually an empty remedy since few FLPs make profit distributions when one partner has a charging order creditor and the FLP is managed by the debtor-partner or her family members.

Though we have discussed several benefits of the LP, we have not yet discussed its biggest benefit from an asset protection perspective. This benefit is the charging order. To say the charging order is a benefit is actually a bit of a misnomer, because in actuality the charging order is a remedy available to creditors. However, the remedy is so limited that it is often ineffective. That is why, amongst the over 20,000 entities we have created for clients (most of which were susceptible to a creditor’s charging order), fewer than five clients have been subject to a charging order. Furthermore, if the LP is created and operated correctly, a creditor has no other way to reach LP assets other than the charging order.

So what is the charging order? The charging order is a statutory provision of law under the UPA, ULPA, RULPA, and Revised Uniform Limited Liability Company Act (RULLCA) which provides a creditor of a company’s partner or owner may attach company distributions made to that individual. However, this is generally the only remedy available to the creditor. This is so because it would be unfair to the other partners – or to the partnership itself – if a creditor were able to disrupt partnership business. This would harm the other partners who are not parties to the debt. Consequently, the charging order does not allow the creditor to control the entity, attach the entity’s assets, or become a partner or owner of the entity. Of critical importance is the fact that, since a charging order holder cannot control the entity, they cannot control its profit distributions. In other words, if the entity never makes a distribution to the debtor-partner, then the creditor never receives a distribution. Their charging order then is essentially worthless. But a note of caution here: It is not a good idea to make distributions to all partners except the partner whose interest has been assigned to a creditor via a charging order. A judge might see this as an overt attempt to thwart the creditor from receiving his due. In such an instance, it is conceivable that a judge could view such circumstances as being akin to a fraudulent transfer which might then lead the court to force a distribution from the entity. If someone wishes to have distributions made to the other partners or owners while keeping his distribution out of the hands of his creditors, then before the creditor threat arises, the partner should place his partnership interest in another entity that is also protected by the charging order. The distributions will then be made to the second entity and not to the individual directly.

A family limited partnership (FLP) is a limited partnership (LP) owned by family members, or family controlled entities (trusts, etc.). They work the same as any limited partnership. The FLP is commonly used for protection because it can protect a wide range of assets, maximize your creditor protection, minimize your estate taxes, and give you or your family continuing control over your assets.

For many years, the limited partnership has been a staple of asset protection planning. Although in many instances the limited liability company (LLC) is now preferable to the LP, limited partnerships are still popular, and are sometimes still the entity of choice, especially for the reduction of estate taxes.  Limited partnerships are a variation of the general partnership. General partnerships (commonly referred to as ‘partnerships’) have existed for thousands of years. They are typically small businesses wherein each partner may manage, act for, and bind the company. Although a general partnership is technically not a distinct artificial entity, as it is not created by the government, each partner usually contributes property to a general pool of partnership assets as necessary for it to conduct business, and it is often treated as a distinct entity. General partnerships are often very basic and informal in their structure, and are thus easy to form and operate, requiring a minimum of associated paperwork aside from filing partnership tax returns.

As commercial law developed general partnerships gradually began to demonstrate some glaring shortcomings and that brought about the limited partnership. Among these shortcomings is the fact that one partner can make a decision that could financially harm not only the partnership as a whole, but the personal wealth of the other partners. Like a sole proprietorship, general partnerships have no limited liability. Therefore, if one partner obligates the partnership to debts it cannot pay, the personal wealth of all partners is at risk of being forfeited to the partnership’s creditors. The same is true with debts arising from lawsuits: if one partner is dishonest or commits a tort while working for the partnership, then a creditor could obtain a judgment against the wrongdoer, the partnership as a whole, as well as each individual partner.

The limited partnership’s chief difference from the general partnership is that it has two classes of partners: General partners and limited partners. A general partner manages the company. However, the general partner has unlimited personal liability. Consequently, if the company is unable to pay its debts, its creditors can look only to the property of a general partner to satisfy those debts.

Limited partners do not have this same vulnerability. A creditor can only pursue a limited partner’s assets to the extent those assets have been contributed to the partnership. This makes their liability similar to a corporate stockholder. This idea has been codified in the ULPA and its successors. At the same time, a limited partner is forbidden from managing or otherwise running the company. If a limited partner does manage the company then he will likely lose his limited liability.

Because general partners – even in a limited partnership – have unlimited liability, an LLC or corporation is often used as the general partner of an LP. This effectively gives the general partner limited liability. Although the LLC or corporation has unlimited liability for the debts of the LP, those debts do not generally extend to the owners or managers of the LLC or corporation. This arrangement is especially useful if multiple individuals manage the partnership. Instead of each person acting as a general partner where their actions could expose the other general partners to liability, they can each be a manager of a single LLC, a corporate officer, or board member of a single corporation. This would limit their exposure to the wrongful acts of the other managers, and allow everyone to participate in managing the LP.

Besides the distinction between limited and general partners, a limited partnership essentially operates like a general partnership. Consequently, LPs (before LLCs became popular) were often the entity of choice for small businesses. The reasons for this are threefold: Simple management structure, lack of a requirement to follow corporate formalities, and partnership tax (pass-through) treatment.

No. For a corporation to give you inside protection, you must transfer your personal wealth to the corporation. You would then no longer personally own your boat, car, paintings, etc.; instead your corporation would. Your personal creditor could not directly claim the assets owned by the corporation, however, they could seize your corporate shares. That’s the problem. Your ownership interest in the corporation can be seized and controlled by your personal creditor. If you own a controlling interest in the corporation, your creditor would indirectly control your corporation’s assets. So you can never safely use the corporation alone to protect your personal assets. You must use a corporation in combination with other asset protection tools to adequately shield your personal assets. Nevertheless, a corporation can provide temporary shelter for personal assets. For instance, one memorable client transferred $100,000 to a Nevada corporation  only two days before a creditor won a sizeable judgment against him. Had the client kept the bank account titled in his own name, the creditor would have immediately levied the account. But with his funds temporarily titled to a corporate account in another state, the creditor would first have to go through discovery before the creditor could find and seize the corporate shares. Of course, this gave us ample time to create a safer repository for his money.

In sum, the problem with a corporation to protect personal assets is that you literally ‘chase your tail.’ While your assets are no longer exposed, your shares are instead vulnerable. For protection, you must then find ways to protectively title your corporate shares, as they cannot be owned by you personally.

S and C corporations provide the same limited liability. They differ only in how they are taxed. There are also restrictions as to who can be stockholders in an S corporation. One restriction is that S corporation shares cannot be owned by other entities. That limits your ability to protect your stock ownership.

No business is too small to incorporate because no business is safe from lawsuits. Obviously, the larger enterprise has more need for corporate protection if only because it is a larger lawsuit target, but still no business, no matter how small or seemingly safe, is immune from legal and financial disasters. Here is why we say no business is safe. A wealthy widow from our neighborhood, and a client, enjoyed spending her weekends selling imported dolls at a local flea market. Not long ago she sold a defective doll. A customer’s three-year-old daughter punctured her eye after dislocating the doll’s arm, exposing a large nail. This lady is now defending herself and her not insignificant wealth against a $5 million product liability claim.

Had she incorporated her tiny kiosk enterprise, her corporation, and not herself, would have the liability; her personal assets would not be in jeopardy. Why didn’t she incorporate? Her accountant discouraged her. “You don’t need a corporation. Why spend money to incorporate to run a nickel-and-dime weekend business?” Bad advice! Had she incorporated, she would not be worried sick about losing everything she owns. Incorporating is your best insurance.

A corporation creates a barrier between your personal assets and the corporation’s creditors. In other words, you gain ‘inside-out’ protection. You personally insulate yourself from the debts of the corporation. But this too has its limitations. If you own a corporation and get sued by a personal creditor, your personal creditor can claim your shares in the corporation. If you own a substantial share of the corporation the creditor can then liquidate the corporation and claim its assets. That’s why we instead use limited partnerships, limited liability companies, irrevocable trusts or other protective firewalls to shelter your stock ownership in a corporation. So we rarely use corporations in our planning to protect personal assets, since the corporation offers no protective advantages over LLCs or LPs. Moreover, the corporation can impose negative tax consequences. From our view, the only place for the corporation is in business planning – and even then the corporation is less frequently the entity of choice for most small businesses.

Positively. Those co-owning property seldom contemplate the potential liabilities they can incur from their co-ownership. Nor do they always consider whether their co-ownership aids or impedes the protection of the assets from their personal creditors.

Consider again the example of two business partners who title investment property in their personal names as tenants-in-common. If someone gets injured on the property, who has liability? How could these co-owners have more intelligently titled their property to reduce their personal exposure? What if one co-owner files personal bankruptcy or loses a lawsuit? What more could – and should – have been done to safeguard the debtor-partner’s interest in the property?  Or consider an elderly mother with a middle-aged daughter. The mother wants to leave her savings account to her daughter when she dies and also wants her daughter to have access to the account in the event the mother becomes disabled. So mom sets up a joint account and titles her bank account in both the names of herself and her daughter as joint owners. Mom logically reasons that when she dies the money will automatically pass to her daughter avoiding probate. It sounds so sensible. But does mom realize the potential pitfalls and liabilities of a joint bank account? What if the daughter is sued or has her own creditor problems or has tax troubles or divorces? Poof! A healthy chunk of the savings accounts would then go elsewhere. You see, people don’t think much about these things.

Married couples often see co-ownership as their simplest, most natural way to title their marital property, but they too, must ask themselves the same questions: Will co-owning their assets increase their respective liability? Will they get more or less lawsuit protection? And will co-ownership help or hinder their other estate and tax planning objectives?

There are nine community property states. Community property includes all marital assets. There are also separate assets; those acquired by either spouse through gift or inheritance, acquired before marriage, or specifically partitioned by the spouses into separate property. The community property laws don’t protect marital assets from creditor claims against one spouse; however, separate property of the non-liable spouse is generally sheltered from claims against the other spouse if the debt didn’t benefit both spouses. Generally, it is wisest to protect both community property and separate property through other means.

A married couple may partition and separately own assets in a community property state via a transmutation agreement. A transmutation agreement is a type of post-nuptial agreement wherein each spouse agrees to keep their own property separate and outside the community estate. A well-drafted transmutation agreement thus supersedes community property law. When drafting a transmutation agreement, each spouse should retain separate counsel and have full disclosure of the agreement’s ramifications in order to prevent the agreement from later challenge. If one spouse is particularly vulnerable to creditor threats, a transmutation agreement allows the less vulnerable spouse to separately hold assets, which may provide some asset protection if it is done before the more vulnerable spouse has creditor problems. There are some potential downsides to this solution, however.

The community property law of some states actually increases one’s likelihood of losing marital assets to creditors. Some states allow a creditor to claim all community assets to cover the debts of either spouse. In contrast, a few states’ community property laws actually provide limited protection. For example, Arizona allows a debt acquired by either spouse prior to marriage to be satisfied from community property, but only to the extent of the value of that spouse’s contribution to the community that would have been such spouse’s separate property if he or she were single. In contrast, an unsecured debt acquired during marriage may not be satisfied from community property. Nevada allows a spouse’s separate debt to be satisfied from community property, but only if the wife acquires debt because the husband didn’t provide for her necessities. Such a debt can then be satisfied from any community property, or from the husband’s separate property. In Texas, only tort debts, not contract debts, may be satisfied from community property, but if the debt arises from a tort, then  it may be satisfied from any and all community property. The same can be said for tort debts in Washington, except they may only be satisfied from the debtor’s half of community property. On the other hand, California, Louisiana, Idaho, New Mexico, and Wisconsin allow a separate debt acquired by either spouse during marriage to be satisfied out of any community property.

As you can see, each state’s community property laws have important differences in the construction or interpretation of their laws. If you live in a community property state, then review with your attorney precisely how your state laws work. Focus on what specific rights creditors have to claim both community and separate property. We necessarily speak in generalities. Your community property state may follow somewhat different rules.

Joint tenancy is a particularly popular form of co-ownership. Several key features distinguish it from tenancy-in-common. One such feature is its right of survivorship. When one joint tenant dies, the jointly owned property automatically passes to the surviving joint tenant(s). Jointly owned property then passes outside a will, and thus avoids the expense and delay of probate. Because joint tenancy avoids probate, many financial and legal advisors recommend that their clients title their assets as joint tenancy. Unfortunately, these advisors don’t always tell their clients how joint ownership can hurt them. In our view, joint tenancy is nearly always a mistake because it significantly increases lawsuit risks, frustrates sound estate planning and provides little or no lawsuit protection.

For starters, jointly owned property, whether personal property or real estate, creates the same lawsuit and creditor risks as does tenancy-in-common. In some circumstances you can have greater exposure. Generally, you also have the same lack of protection as you do with tenancy-in-common. Your personal creditors can seize only your interest in the co-owned property. You also have about the same tenancy-in-common risks. If your co-owner(s) has legal or financial problems, his creditors can claim his interest in the property and become your co-tenant. Alternatively the creditor can force a sale of the entire property to recover the debt owed by your co-owner(s).

However, joint ownership has an added twist. It puts you in a ‘winner-takes-all’ game. You ‘gamble’ that you will survive your co-owner (joint tenant). Because jointly owned property automatically passes to the surviving joint tenant(s), if the liability-free tenant dies before the debtor tenant, the entire property automatically passes to the debtor, and the entire property can then be claimed by the surviving debtor’s creditors. For example, if you and John own the building as joint tenants, and you die, John’s creditors could then levy or seize the entire building. Your family would have no further ownership claim to the building. Of course, the alternative outcome in this ‘winner-takes-all’ game is that if the safe co-owner (you) survives the debtor co-owner (John), you own the entire building free of John’s creditors. This may be one advantage with joint tenancy: It is you who may win the game.

Joint tenancy also impairs good estate planning. For instance, if your estate plan is to gift your property at your death to your friends, you would normally provide for this in your will or living trust. Joint tenancy may frustrate this estate planning objective because whatever property is jointly owned instead passes automatically by rights of survivorship to your surviving joint tenant(s). This automatic transfer occurs the instant you die. Your will or living trust would be totally ineffective in disposing of any jointly owned property. Any beneficiaries that you designate in your will or trust to inherit your share of jointly owned property are effectively ‘disinherited’ since the property instead goes to the surviving joint tenant(s). We see this avoidable tragedy every day because many people do not understand this survivorship feature about joint ownership, nor do their advisors always inform them. And, as we say, plenty of folks have absolutely no idea how their assets are titled or its consequences. They should review these issues with their attorney

Each co-owner in a tenancy-in-common or tenant-in-common own a divided fractional share of the property. This creates serious lawsuit dangers and, reciprocally, no creditor protection. There are many examples to illustrate the risks of tenants-in-common. For instance, if you and your friend John are tenants-in-common and own an apartment building, each of you can sell, gift, or mortgage your half interest in the building without the consent of the other. You are thus essentially ‘partners’ in the business of renting apartments, collecting rents, maintaining the premises, etc., and the building provides you an income. Perhaps someday you expect to sell the building for a hefty profit.

Since you and John are tenants-in-common, you each own a separate share in the building which is distinct from the interests of the other tenants-in-common. Your personal creditors cannot claim your co-owner’s interest and, conversely, if John is sued for reasons unrelated to the building, John’s creditors can only claim his half interest in the building. Your half remains safe from John’s creditors. While this may seem acceptable, particularly if you see yourself as the safe co-owner, a tenancy-in-common can nevertheless cause problems.

One big risk is that your co-owner’s creditors can force a sale of the entire property to satisfy your co-owner’s personal debts. Since your co-tenant, John, can transfer his share of the tenancy-in-common property without your consent, John’s creditor can ‘step into his shoes’ and similarly sell his interest. You may possibly negotiate to buy your co-owner’s interest to avoid the forced sale of the entire property, but this is not always practical; you may not have the money. Should the court force the sale of the entire property, you will nevertheless lose the property, although you will recover your half share of the net proceeds from the forced sale.

Suppose John’s creditors do not force the sale of the entire property but instead successfully bid for John’s half interest in the property. You now have a new partner – John’s creditor! It can and does happen. You can see that John’s financial problems can cause you serious problems, and your problems can become John’s headache. More importantly, how safe is your ownership interest from your own creditors when you own property as tenants-in-common? You already know the answer: If John’s creditors can seize his interest your creditors can seize yours.

This is why co-owning property as tenants-in-common is too risky. If you or your co-owner has financial problems, you can easily lose control of the property or you might lose significant money. Avoid this trap. We will later tell you about many better ways to co-own assets through various protective entities. If you insist upon titling assets as tenants-in-common, then make certain that your co-tenants are financially secure; otherwise you risk a forced sale, a new co-owner or lost control of your investment.

Aside from the vulnerability of your co-ownership interest, perhaps an even bigger pitfall is that tenancy-in-common expands your liability. If John accidentally injures somebody through his negligent management of the co-owned property, who gets sued? Both you and John, of course. Since you co-own the property, you essentially created a general partnership. Should the plaintiff win a $5 million judgment or any amount that exceeds what the property or John is personally worth – who pays? You, of course. As co-owners, you and John have joint and several liability for any liability that arises from co-ownership of the property. The bottom line is never to own property directly as tenants-in-common. Co-own the asset indirectly through a protective entity.

Not generally. For example, two or more parties may own property as tenants-in-common, yet that’s a dangerous form of ownership because each co-owner’s interest is vulnerable to his or her creditors. As importantly, these co-owners are both  personally liable for any liability created by the asset. The same is true with property jointly owned with right of survivorship (JTWROS). Families and spouses often use this form of ownership to avoid probate, but it presents the same problems as tenancy-in-common. It’s far safer to co-own assets through a protective entity – such as a limited partnership or LLC – than as tenants-in-common or JTWROS, because these entities limit your personal liability. Moreover, your ownership interest in these entities would also be protected from your personal creditors. Direct co-ownerships other than as tenants-by-the-entirety is almost always a mistake.

Certainly. Of the four types of co-ownership, only tenancy-by-the-entirety (TBE) may provide meaningful asset protection. Tenancy-by-the-entirety is a special type co-ownership only available to a husband and wife. Tenancy-by-the-entirety ownership must also meet the requirements of joint tenancy in order to be valid. And if a couple divorces, then ownership will be held as tenants-in-common or as joint tenants rather than as tenants-by-the-entirety. Tenancy-by-the-entirety offers right of survivorship benefits (as does joint tenancy), but it may also protect the asset in certain states, provided only one spouse comes under creditor attack. This is because, in most states, entireties property may not be transferred or otherwise alienated without the other spouse’s consent. Furthermore, neither spouse owns a fractional share in the property. Rather, each spouse claims an entire ownership interest in the property, but such ownership rights is subject to the other spouse maintaining their property rights as well. Because their respective ownership interests are not divisible and may not be transferred without the other spouse’s consent, most entireties states do not allow a creditor of only one spouse to attach entireties property without the consent of both spouses.

Unfortunately, tenancy-by-the-entireties ownership is not available in all states. And in those states where it is available, it may not be allowed for all assets. Some states prohibit entireties ownership either by case or statutory law, and in other states it is unclear whether entireties ownership is allowed. One should still consult the statutory and case law of his or her particular state, as there are further differences in entireties laws. For example, a few states restrict entireties ownership only to primary residences. Alaska, Hawaii, Tennessee and Vermont specifically allow rental real estate to be held in entireties, yet other states may allow it by case law.

There are many cases where entireties ownership has successfully shielded assets. Nonetheless, we usually conclude that this form of ownership cannot be relied upon as an impenetrable creditor defense. On the upside, it’s very easy to title assets as tenants-by-the-entirety between a husband and wife in those states that allow it, and in those states, it is a great way to add an extra layer of protection.

For example, in a state that recognizes entireties ownership, it may be a good idea to so title the ownership of business entities. We have had numerous properties from one spouse’s creditors where we protected entireties. Nonetheless, merely saying an asset is held in the entireties is not sufficient. The title documents to the asset should expressly state that the asset is held as tenants-by-the-entirety.

One form of protective co-ownership is tenancy-by-the-entirety (TBE). Twenty-five states, at least to some extent, protect assets owned by spouses as T/E against the creditors of only one spouse. Some T/E states limit their protection only to the family residence and other states extend their protection to other real estate, and still other states extend their protection to any assets, including stocks, bonds, personal property, and so forth that are titled as tenants-by-the-entirety.

Co-ownership planning is the concurrent ownership of property by two or more people. The most common co-ownerships involve assets owned between a husband and wife. When we refer to co-ownerships, we do not usually mean the co-ownership of business entities by multiple individuals (unless an undivided interest is held jointly or as tenants-by-the-entirety), nor do we refer to multiple beneficial interests in a trust.

There are four types of co-ownerships namely; 1) tenancy-in-common (TIC); 2) joint tenants with right of survivorship (JTWROS); JTWROS is often referred to simply as ‘joint tenants’ ownership; 3) tenants-by-the-entirety (TBE); and 4) community property.  It’s important to understand the distinguishing features of each. Many folks don’t understand the consequences of co-owning assets with others.

That answer mostly depends largely on the debtor’s state laws. Several states – most notably Florida and Texas – are exceptionally debtor oriented. They exempt, or creditor proof, a wide range of assets. That’s why a large number of debtors relocate to Florida. It is not so much to enjoy their favorable weather as it is to take advantage of their generous exemption laws. For instance, Florida protects the entire value of your home, IRAs, life insurance and annuities, and wages. Many of our Florida clients need little or nothing more in terms of additional protection. The state exemption laws cover all – or most – of their assets. Texas is an equally debtor friendly state. On the other hand, a number of states are creditor friendly with narrow exemption laws. New Jersey is an example where relatively few assets are self-protected.  The exemption laws become even more important when planning bankruptcy because the federal bankruptcy exemptions may protect a broader range of a debtor’s assets.

It may then be too late. Many courts consider this a fraudulent transfer. You may attempt it, but it’s not wise to rely on this one strategy alone if you already have a liability. Many states also have anti-conversion statutes that deny the exemption to certain exempt assets purchased after you have a liability.