Myth # 3 Transfering Assets To One’s Wife Insulates Them From Creditors

There was a recent story in the local news about a lawyer who accidentally killed a fellow hunter last deer season. The lawyer was a convicted felon, a circumstance that not only should have precluded his admission to the bar but also under Pennsylvania law, precluded him from owning or possessing firearms of any sort.

As you can imagine, the lawyer is in a heap of legal trouble. He recently pleaded guilty to two felony counts of illegal possession of firearms and no contest to a charge of involuntary manslaughter and faces 12½ to 25 years in prison when he is sentenced later this summer. But he also faces massive civil damages from a wrongful death suit filed by the slain hunter’s widow.

Recently the widow requested the Bucks County Court of Common Pleas to void the transfer of four parcels of land that the lawyer, in a ham-fisted attempt to shield assets from what figures to be an enormous civil judgment, had sold to his mother for one-dollar and a fifth that he had sold to his sister for the same amount following his arrest last December.

That development reminded me of a frequent observation made on home inspection forums and to me at the Law and Disorder seminar that “putting everything in [one’s] wife’s name” would render an inspector judgment-proof and, thus, eliminate the need for an inspector to carry professional liability insurance. This, I suppose, is a corollary to the E-and-O-puts-a-target-on-your-back theorem that is so widely embraced in this industry.

Whenever someone proposes this nostrum, I am always arrested by the impressive lack of thought given to the potential side effects of this strategy. Leaving aside the question of how someone with no assets can operate a business with no assets or secure lines of credit, consider these other potential issues.

What if the wife dies and the assets have to go through – and be taxed by – the probate process where claims may be made by a whole host of third-parties? What if the wife runs off with pool boy? What if the wife kills a thirty-five year-old anesthesiologist, his pediatrician wife and two of their three children in an automobile accident? What happens to the assets under those circumstances?

Thus, while transferring assets to another party or entity might insulate them from the reach of the transferors’ creditors, it will not protect them from the reach of the transferee’s creditors. It is a zero sum game. And no way to run a professional home inspection business.

If you want to protect your assets, get insurance and deep-six the crackpot responsibility-avoidance schemes.