When it comes to asset protection the majority of attention is given to investment real estate with scant advice on how to protect a personal residence. If you are fortunate to live in a state that offers a high homestead exemption, then this is not a concern, but for everyone else the picture is less clear. Now most professionals will advise you to carry an umbrella policy and not to worry. This thinking is naïve and not representative of how insurance companies view claims – deny, deny, deny, then, pay if forced. However, this also assumes the claim is actually covered under your policy e.g., contract disputes, defaults, environmental claims and bankruptcy are just a few of the items insurance will not cover. So what can you do? Read on.
This week an individual who I met a few years ago at one of my asset protection workshops contacted me, we will refer to him as “Joe”. At that time, Joe was rolling high with his investing and did not have the inclination or time to consider asset protection planning. In fact, I think his CPA may have mentioned that entities would complicate things, so why bother if you have sufficient insurance. Fast-forward to today and Joe’s situation has taken a turn for the worse.
In the process of losing 5 properties to foreclosure, his lenders have refused to accept a short sale. Why? Because the lenders’ performed an asset search and found that Joe has 400k in equity in his personal residence. Several of Joe’s lenders told him they wanted his equity. (In case you are wondering Joe’s insurance refused to cover his deficiency judgment – so much for all that protection!) Joe called me for help! Unfortunately, I could not help Joe because the horse had left the barn, i.e., Joe was knew he was about to be sued and any asset planning would be considered fraudulent.
Joe’s problem could have easily been solved if he had taken any one of the following actions to protect the equity in his personal residence several years ago.