Issues of Morality in Asset Protection Planning

This section considers the morality of asset protection. Considerations include whether asset protection planning should even exist, and if so in what circumstances is asset protection planning appropriate.

In modern society, morality is something that is intensely personal and thus by and large is left to the individual -- except in cases where others may be harmed. An example is alcohol. As an adult, you are free to drink alcohol. However, drunk driving is harmful to others; therefore, you are not allowed to drink and drive.

Questions arise in asset protection planning as to whether the planning "harms" someone else; namely, creditors. Questions also arise as to timing, i.e., if you engage in asset protection planning when you don't have any claims against you, are you at that time harming yet-unknown future creditors?

Various bodies of law, including those codified in the Uniform Fraudulent Transfers Act, attempt to define when asset protection is proper and when it is not. Yet, as with almost every area of law, the boundaries between proper and impermissible are rarely clear.

Does the legal boundary of permissible asset protection affect its morality? In other words, is the conduct any more or less morally defensible because it is allowed? Or, to take the flip side, if something is not allowed does that always mean that it is wrong for the debtor to take that course?

The hardest questions of morality seem to be in distinguishing those cases where asset protection is appropriate from those where it is not. While this seems purely philosophical and abstract in nature, the resolution of such questions can often have stunningly practical effects. The moral implications of creating a particular asset protection plan for a particular circumstance may determine whether or not the plan ultimately works.

Keep in mind that a judge may be influenced by moral considerations when determining whether to allow a particular asset protection structure to protect assets from a particular creditor. Similarly, a jury evaluating a possible obstruction of justice claim, or a civil lawsuit for civil conspiracy to defraud creditors, will likely make their own moral judgments. This means we must heed, in the vernacular of trial lawyers, “the cornfield equities”.

Questions of morality thus play a very real and very practical role in asset protection planning. This fact has largely been overlooked in the professional journals and elsewhere -- the question of how to protect particular assets greatly overshadows the larger and more important question of whether those assets should even be protected in the first place. Yet, the considerations are inseparable. A good asset protection plan is likely to fail if the client is in the wrong, just as a bad asset protection plan is more likely to succeed if the client is in the right.

I have created the following scenarios to illustrate the moral issues involved in asset protection planning. Reading through these scenarios may elicit a gut reaction of sympathy or antipathy similar to the feelings a judge or jury may have toward the debtor, and by association debtor’s planner.

Adkisson's Scenario No. 1
The Businessman and the Bank

This example was incorporated into “Asset Protection: Concepts and Strategies” (McGraw-Hill 2004), and by agreement with Mc-Graw Hill these materials have been removed from this webpage.

Adkisson's Scenario No. 2
The Stockbroker and the Investor

This example was incorporated into “Asset Protection: Concepts and Strategies” (McGraw-Hill 2004), and by agreement with Mc-Graw Hill these materials have been removed from this webpage.

Adkisson's Scenario No. 3
The Taxpayer and the IRS

Basic Facts: The Taxpayer hasn't paid his taxes, and the Internal Revenue Service is attempting to collect. In which of the following cases (if any) should the Taxpayer be able to protect his assets from the Internal Revenue Service, and to what extent?

1. Taxpayer engages in blatant tax evasion.

2. Taxpayer attempts very aggressive tax strategy, based on a Big 5 opinion letter, but the tax court rules against him.

3. Taxpayer attempts conservative tax strategy, but his CPA (who has no assets or insurance) messes up the strategy, creating a huge unpaid tax liability.

4. Taxpayer pays all personal taxes, but gets into a dispute over unpaid business taxes. The IRS agent is overly aggressive, and seeks to freeze Taxpayer's personal assets to put pressure on him to settle the dispute over the business taxes.

5. Taxpayer pays all personal taxes, but unbeknownst to Taxpayer his business partner has failed to remit payroll taxes. The partnership later fails, and both the taxpayer's partner and the partnership file for bankruptcy. The IRS seeks the unpaid payroll taxes from Taxpayer.

Adkisson's Scenario No. 4
Husband and Wife

This example was incorporated into “Asset Protection: Concepts and Strategies” (McGraw-Hill 2004), and by agreement with Mc-Graw Hill these materials have been removed from this webpage.

Basic Facts: Father and Mother marry, and have a child. Later, they divorce and Mother seeks child-support payments from Father. In which of the following cases (if any) should Father be able to protect his assets and income from the child-support order?

1. Father has the ability to repay the child-support, but is a “deadbeat dad” who welches on his obligations to other creditors as well.

2. Father has the ability to repay the child-support and has funded a trust for the children’s education and well-being, but Mother comes from a wealthy family and is pursuing the child-support only for spite.

3. Mother tells Father that the child is his to induce Father to marry. After birth of the child, it becomes apparent that Father is really not Father, and a blood test confirms this. However, the laws of the state wherein they were married say that Father has to pay child-support anyway.

4. Father and Mother divorce before Mother even tells Father of pregnancy. Child shows up on Father's doorstep 17 years later and demands back child support.

Adkisson's Scenario No. 6
The Icy Highway

Basic Facts: Driver is navigating icy highway, and slides into Victim. In which of the following cases (if any) should Driver be able to protect his assets and income from the Victim?

1. Driver is intoxicated.

2. Driver is sober, but reckless.

3. Driver is a surgeon who was attempting to rush to the local hospital to perform life-saving surgery, but hit a patch of hard-to-detect “black ice” and slid into a school bus.

4. Victim is a "career plaintiff" who has filed 12 similar lawsuits, and in this case cut in front of Driver so that Driver couldn't help but hit Victim.

5. Crash is not so severe that a normal person would have been hurt, but Victim in this case has rare spinal condition and the wreck results in the Victim losing all bodily motion.

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This website is by far the largest and most comprehensive creditor-debtor and asset protection resource available anywhere. This website hosts thousands of pages of articles, cases, statutes, analysis, and many other resources to assist planners and judgment collection professionals in researching contemporary creditor-debtor issues.

While the articles and analysis on this website are most often drafted from a planner's point of view, creditor attorneys and judgment collection professionals will also find many of these resources to be highly useful. We have tried whenever possible to be balanced in our analysis by pointing out strengths and weaknesses in different structures and strategies from both the planner's and creditor's viewpoint.

This website was primarily created to support our book Asset Protection: Concepts and Strategies (McGraw-Hill 2004). Because of the publishing agreement with McGraw-Hill Companies, Inc., certain articles which were used as the basis for that book have been withdrawn from internet publication. It is suggested that the book be used as the primary resource, and that the other materials on this website should be used as supporting materials only as needed.

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