I don’t have any offshore accounts, or hedge fund investments, but I do have an asset protection strategy that is easy for almost anyone to get.  The investments in my 401(k) plan are protected from creditors; both corporate creditors and personal creditors.  Qualified plans that are subject to ERISA provide asset protection for the participants of the plan. 

TRAIL OF ASSET PROTECTION

1. The Employee Retirement Income Security Act (ERISA) requires that retirement plans prohibit the assignment of benefits provided by the plan.
2. The Federal Bankruptcy Code Section excludes from the bankruptcy estate any property that is subject to a restriction on transfer.
3. In 1992, the United States Supreme Court held that a participant in a retirement plan is exempt from the claims of creditors in a bankruptcy proceeding.  Their decision was based on the fact that ERISA rules require a restriction on the transfer of funds, so since there is a restriction on transfer, the funds in the plan are exempt from the bankruptcy estate.
4. The asset protection under ERISA is a federal protection, so that protection extends to all of the States as well.

While qualified retirement plans offer asset protection, Individual Retirement Accounts (IRA) may not.  IRAs are ruled under a different Internal Revenue Code section than qualified plans, so the asset protection features are not guaranteed in all cases.

There have been cases where the courts ruled that the prohibition against the assignment of benefits does not preclude collection of taxes by the IRS for payment on a tax lien.  On the other hand in the event that a participant has a garnishment of wages imposed, plan accounts do offer asset protection from those garnishments.

In the event of a divorce or child support order, qualified plan assets may be required to be distributed to provide benefits to the former spouse or the children under a Qualified Domestic Relations Order (QDRO), or a Qualified Medical Child Support Order (QMCSO).  A QDRO or QMCSO must be written according to specific guidelines, and approved by the court before the distribution can be processed.

In summary, the asset protection features of an ERISA qualified retirement plan are a critical first-step for anyone looking to shield himself or herself from creditors.  Once you’ve built up your retirement account, and still need additional protection, then you might look to an asset protection trust or other planning tool.  These options are certainly available to anyone as a perfectly legal solution, and saves on airfare visiting your money in an offshore account.

Click here if you would like to learn more about establishing an ERISA qualified plan for your company so that you can start your asset protection strategy today.