If you do not pay a personal or business debt, an accident, unpaid taxes or other financial liability, a creditor or injured party may sue you for the amount you owe. If the court issues a judgment against you, the creditor or injured party may take several steps to recover the judgment amount, plus court costs and attorney fees. You may be subject to garnishment of wages, as well as amounts held in bank accounts in your name. You may also lose personal property and real estate you own. In most cases, transferring assets to your wife will not prevent loss.
Proactive Asset Protection
Transferring assets before a lawsuit is considered proactive financial planning, and does not violate federal or state law. The transfer must not occur in contemplation of a lawsuit or insolvency -- that is, you must not foresee a lawsuit when deciding to transfer your assets to your wife. The transfer of assets as a means of proactive asset protection, without contemplation of a lawsuit or insolvency, may protect your assets in states where spouses retain individual ownership of property.
Reactive Asset Protection
Transferring assets to your wife after the commencement of a lawsuit against you will not place your assets out of the reach of the judgment creditor -- the court will likely allow the creditor to take money and liquidate the personal property you transfer to your wife, subject to the same limitations and exemptions placed on personal property in your name. The court will also typically allow the garnishment and liquidation of assets transferred in contemplation of a lawsuit -- that is, if you know or should have known that you will be sued.
State and federal courts may consider transferring your assets to your wife after the commencement of a lawsuit or in contemplation of a lawsuit a fraudulent conveyance under the Uniform Fraudulent Conveyance Act. Insolvency, or the inability to meet your financial obligations, at the time of transfer increases the risk of a court considering a transfer fraudulent. If the court determines that you have taken overt steps to hide your assets or place them out of reach of your creditors, it may pursue felony charges against you.
Some states, such as Texas, Arizona, California or Nevada, consider all assets you accumulate after marriage to be communal property -- that is, the property is owned by both you and your spouse. In these states, a creditor can garnish funds and liquidate property transferred to your wife simply because you retain ownership under communal property laws.
- "The DebtClear Roadmap"; Michael Croix; 2011
- BankRate.com: Community Property, Common Law, Assets and Debts