The $125 Million Target On Lance Armstrong’s Back

By: M. Wayne Patton

I wrote previously about the things we can all learn from OJ Simpson (besides how to get away with murder). Now Lance Armstrong is about to teach us all a thing or two about asset protection planning.

Lance Armstrong has an estimated net worth of about $125 million. The one thing $125 million will definitely buy you in the wake of a doping scandal is a giant target to hang on your back. So Lance Armstrong has discovered, as he’s now being sued by the U.S. Government and several other private companies.

The Justice Department is suing Armstrong to recover sponsorship money paid to him by the United States Postal Service between 2001 and 2004, even though studies have shown that those sponsorships yielded significant returns to the USPS in the same years. The gist of the lawsuit is simply that the USPS has been irreparably damaged in subsequent years by its close affiliation with the doping cyclist.

Bandwagon Litigation

Other have jumped on the lawsuit bandwagon, but in a different context than you might expect. The Dallas-based promotions company SCA is suing Lance Armstrong to recover $12 million in bonuses it paid to him for winning multiple Tour de France titles. The irony is that SCA originally refused to pay the bonuses because of allegations that Armstron had violated anti-doping rules. Armstrong vehemently protested and filed suit against SCA. Armstrong’s suit eventually settled with SCA paying him $7.5 million. Now SCA wants that money back, as does a London based newspaper that paid Armstrong a $500,000 settlement over allegations of libel related to doping.

It’s very atypical for settled cases to be reopened, but it seems that Armstrong could be the poster child for a new precedent, since he so clearly lied to everyone except Oprah.

Lance Armstrong and Asset Protection

Time will surely tell if Lance Armstrong has any asset protection in place other than a corporation called Tailwind that was the contracting party with Armstrong’s sponsors. As the New York Times reported, “Mr. Armstrong put a layer of legal protection between himself and the money. And if nothing else, it shows that he has had good legal counsel over the years.” But a simple corporation might not be enough in the wake of the biggest doping scandal to date.

Lance should just feel lucky that he’s being pursued by Nike, the sports giant that been jilted at that alter of sponsoring athletes so many times it doesn’t know what to do.

Protect Assets From Lawsuits

By: M. Wayne Patton

Is it truly possible to completely protect assets from lawsuits? Some people don’t think so. For example, a New York Times Article recently quoted one asset protection attorney as comparing legal planning to setting up roadblocks that are expensive for creditors to smash.

Protect Assets From Lawsuits

Those roadblocks can be toppled, but every time you knock one over, it costs the creditor a lot of money, sometimes up to $500,000. So in most cases the creditors and their attorneys (who often work for contingency fees) choose to settle and take the easy dollars.

To most people, the words “asset protection” conjure images of offshore bank accounts reserved for the ulta wealthy or James Bonds of the world. But that’s a narrow view. Almost everyone needs some sort of asset protection, even if it’s just intended to protect the equity in a home. Professionals with above average risk of being sued like architects, doctors, and lawyers also need to pay special attention to their potential exposure and take special steps to protect assets from lawsuits.

The First Step In Protecting Assets From Lawsuits

The first thing to do is assess what assets you have and which of those assets are already exempt under applicable laws. Asset exemption vary from state to state. For example, primary residences or “homesteads” in Florida are absolutely protected against creditor claims. Most states don’t provide exemptions as generous as the Florida homestead exemption, but all states do provide some statutory protections for things like IRA accounts, life insurance policies, annuities, etc.

After an initial assessment, you have to “wear the hat” of someone who would be suing you. This seems weird, but it’s absolutely critical if you want to protect assets from lawsuits. This is why it makes a lot of sense to hire an asset protection attorney who has experience pursuing debtors in addition to protecting assets. Having an attorney who has worked on both sides of the ball can only help your cause in protecting your assets from lawsuits.

Insurance and Trusts

When looking at a lawsuit from the standpoint of a creditor, what you want is the easily accessible pot of money. Insurance is the first thing that most creditor attorneys look for, because insurance companies are required by law to pay the claims of their insured. You can bet that having some insurance is a smart asset protection play in the context of lawsuits. If nothing else, you need to have a policy that covers your attorney fees.

Just like insurance, trusts need to be put in place before trouble is on the horizon. You can’t call an insurance agent and ask for fire insurance while your house is on fire. The same applies to trusts. They are prophylactic in nature, and you need to put them in place before the fires start. That’s true whether you want to create a traditional trust to protect assets for your children, a domestic asset protection trust (a.k.a. DAPT), or a self-settled offshore asset protection trust. They need to be put in place well in advance, if you intend for them to protect assets from lawsuits.

The trick is to put a plan in place today that protects you against a lawsuit being filed by some unknown creditor in the future. 

Fraudulent Conveyance In Simple Terms

By: M. Wayne Patton

A fraudulent conveyance can totally defeat an asset protection plan, no matter how good the plan itself may be. Laws regarding fraudulent conveyances (a.k.a. fraudulent transfers) make certain types of transfers wrongful. This shouldn’t be confused with the concept of fraud or anything else illegal. I know, I know . . . the use of the word “fraud” in and of itself is scary, but a fraudulent conveyance isn’t illegal and has nothing to do with actual fraud. If a court finds that a fraudulent transfer or conveyance has occurred, then the court merely sets aside (a.k.a. claws back) those transfers. Pretty simple.

What Is A Fraudulent Conveyance

In basic terms, a fraudulent conveyance is any transfer or sale of assets that is intended to “hinder, delay, or defraud” a legitimate creditor.

Prohibited transfers include conveyance made within a certain period of time before a claim is made or while a claim is pending. What is a claim? Claims take many forms. Claims can be lawsuits, but they are also more broadly defined and can include things like demand letters or even accidents where an injured person has yet to contact the person at fault. The crazy thing is that under the Bankruptcy Code section 548 and the Uniform Fraudulent Transfer Act (which has been adopted by all but a handful of states), a transfer can be deemed fraudulent even if no claim exists when the property is transfered. The Bankruptcy Code has a two year “look back” window, for example.

Example of a Fraudulent Conveyance

Consider an oral surgeon or dentist (“doctor”) who is not properly insured. If this doctor accidentally causes injury to a patient during a surgical procedure, the patient clearly has a “claim” on the day the injury occurs. If the patient sues the doctor, then the doctor’s personal assets are at risk, in addition to whatever insurance limits are in place. The doctor’s personal assets include cash, stocks, bonds, investment properties, and in some cases even items like cars, boats and airplanes.

What we’ve established so far is that a doctor with assets has caused an injury. Assume that no lawsuit has been filed. Even though there is not a lawsuit pending, there is a “claim” against the doctor. The doctor knows that she or he could end up owing money to the patient, and that is enough. What can the doctor do to protected his wealth from a lawsuit?

The answer is complex.  While the doctor stills owns and controls his or her assets and can continue to move them around, if the doctor moves assets to a place where they cannot be reached by the injured patient (or if they are sold for less than fair value), then a court can “set aside” those transfers of assets. The bottom line is that a court can require transferred assets to be given to the injured patient, even if the doctor is no longer legally and technically the owner of the assets.

In other words, once a claim exists, it is too late to protect most assets, and you need at least a two year window before transfers can be respected in the context of bankruptcy. While one can continue transferring and investing assets while a claim is pending, it is almost impossible for an asset protection attorney to develop a plan that would make assets immune from being deemed a fraudulent conveyance at that point. The moral of the story is that people with assets who are engaged in professional practices (e.g. doctors, dentists, lawyers, real estate developers, etc.) need to engage an asset protection attorney before claims surface. That is the only way to develop and tailored an effective asset protection strategy to meet individual needs.

It is true that some assets, in some states, are exempt assets and automatically protected by statute. But if you are a person with assets that go beyond exempt assets (e.g. if you have a stock portfolio outside of your retirement account), then you should consider proactively pursuing an asset protection strategy.