If you own a business or have a significant amount of wealth, you may be wondering if there’s a way to protect your assets from lawsuits by hiding them from public record. As it turns out, there are many ways to keep your wealth stealth—you just have to use the right legal tools.
How to Hide Assets from Public Record
- Land Trusts
- Holding Trusts
- Retirement Accounts
- Business Ownership
- Cars, Boats, and RVs
“If knowledge is power, then to be unknown is to be unconquerable.” That sounds like a wise adage from the likes of Machiavelli, but it’s actually from the Romulans of Star Trek—and it perfectly encapsulates what we’re going to discuss in this article: security through obscurity.
In fact, making yourself invisible as much as possible is probably one of the best pieces of financial advice you’re ever going to get. It won’t necessarily make you more money, but it can potentially save everything. And yes—we really do mean everything.
Consider the following scenario: you own a small portfolio of rental properties. Because you’re entrenched in a successful career path that takes all your working hours, you haven’t had the time or energy to explore tax law and business entity formation. You own properties through an LLC, and that seems good enough. Sure, a few friends who flip houses or have a portfolio of multifamily real estate have suggested you speak to an attorney about setting up a formal business structure that keeps your name anonymous. But you’ve figured that a limited liability company and insurance is supposed to protect you. What could go wrong?
Real Life Example: Is a Lawsuit Worth Pursuing?
Let’s say you have a tenant move into one of your properties. Because you own just a handful of properties, you do a lot of the maintenance yourself, including salting driveways before a winter storm. But one day you forgot to do this. Your tenant slips, falls, and breaks a hip; resulting in a hospitalization, followed by outpatient stays, physical therapy, loss of work, loss of income, and general hardship. They decide they are going to sue you, not only to recoup their losses, but because they’re angry that the incident happened in the first place.
The first thing they’re going to do is consult a lawyer. Although this lawyer is happy to help their client, they’re not going to chase every ambulance that passes their way (figuratively, not literally). That’s because many lawsuits are just not worth the time—especially if there is nothing to recover from the potential defendant.
What a litigation attorney is going to do is use a formula to determine if a case is statistically worth pursuing. This formula looks something like this:
Settlement Value = [(Claim Value x Chance of Winning) – Costs] x Chance of Recovery
It looks very complex, doesn’t it? You probably weren’t expecting algebra to be part of practicing law. But it is, because attorneys need to know that something is worth pursuing before putting time and energy into it, let alone potentially violating a fiduciary duty to a client and having them throw money at a case that won’t result in tangible monetary results.
Let’s say that our disgruntled tenant has about $200,000 in hospital bills, outpatient stays, physical therapy, lost work, and trauma. Maybe their medical insurance covered some of it, but not all of it. Now let’s say that the litigation attorney feels this tenant has a 70 percent chance of winning the case. After all, the rental contract clearly states maintenance issues are the landlord’s responsibility, which most certainly includes weather-related maintenance.
Let’s say the entire litigation process costs around $25,000. This would mean they’re looking at a settlement value of $200,000 x 70% = $140,000, with $25,000 in fees, filing costs, and whatever unexpected expenses come into the litigation.
That leaves the claimant with a potential $115,000 settlement. Not perfect, but not too bad either. They can likely pay down their medical debt and finance the rest—possibly even pocketing a few thousand for a restorative trip to Hawaii. But wait, here’s the clincher:
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What Are the Chances of Actually Collecting the Settlement?
The litigation attorney needs to consider the chance of actually recovering this money from the defendant. Returning to our example, because you put the properties into an LLC, you probably think your personal assets are protected. In many cases they are, such as when someone attempts to target your personal assets because of an event that occurred through no fault of your own. However, a plaintiff can litigate beyond the bounds of the LLC and go after your personal assets if the action or inaction was part of your business responsibilities. The litigating attorney will scour the landlord tenant agreement and see if salting sidewalks and driveways is your responsibility. Whether it is or it isn’t, they will make the case that it is.
This is where your personal assets can come into question. The litigating attorney will put in a public records request and try to calculate how easy it will be to recover damages. Let’s say in this case, they estimate their chances of recovery are also 70 percent. That results in the potential $115,000 settlement getting reduced to $80,500. This is still likely worth it to the plaintiff, so they are likely to continue pursuing the case.
Obscure Assets to Reduce Liability
What if you could obscure your personal assets so it appears you don’t own anything other than a personal vehicle—is that possible? Yes, it is. And if you don’t appear to own anything of value, the litigating attorney might determine that the odds of recovery hover around 10 percent. Now we are looking at $115,000 x 10%, which is $11,500.
That amount is hardly worth pursuing. Most litigation attorneys at this point will suggest the tenant pursue a different path, such as exploring the possibility of suing insurance companies and/or negotiating settlements with their medical creditors. Truth be told, some plaintiffs will continue with the lawsuit out of spite or the desperate belief that they can shake the money tree and make it rain. But most of the time, this case is just going fade away because there is a huge question mark over its practical outcome.
If you are the defendant in question, you need to keep your personal assets out of public record to reduce the chances of a litigation attorney building a case to collect them.
What is a Public Record?
Public records are publicly accessible documents that relate to the United States government, private citizens, and their relationship with each other. The purpose of public record keeping is not necessarily to expose you and your assets to danger, but to protect you against illegitimate claims. Public records also facilitate tax payment.
For example, the deed to your home, which bears your home’s title, is public record. This prevents someone else from coming along and laying claim to your property, and it also helps local municipal governments collect taxes.
What is Included in Public Records?
Property, businesses, and sometimes movable property are contained within a public record, along with certain types of contact information and domestic relations, such as marriage records, divorce records, and court documents. For instance, your vehicle is registered with the state’s department of motor vehicles, and a business you own is typically registered with the secretary of state and/or the chamber of commerce.
The downside of public records from an asset protection standpoint is that they are public. Anybody can look through them and see what you own. And if they feel you have deep pockets, the odds of recovery in a lawsuit become a lot more likely for the plaintiff. The Freedom Of Information Act contains additional information about what information can be obtained.
Protect yourself by staying invisible
Keep in mind, however, that financial information and tax returns are not matters of public record. Your Social Security number is also not part of the public record. The IRS, banks, lenders, and other financial institutions cannot give out personal information regarding your tax return or bank account, and they have security procedures in place to ensure that information does not get out against your will.
If the initial lawsuit proceeding go in favor of the plaintiff, they can seek a supplemental judgment where they compel the defendant via court order to reveal confidential financial information, such as bank account statements or a tax return. However, the process of litigating into a supplemental judgment will take at least one to two years—if not longer with the Covid pandemic slowing down court procedures. That’s plenty of time for your attorney to strategize a defense, and in some cases, even get the case excused.
The Goldman family is still trying to get O.J. Simpson’s NFL pension. That’s why some attorneys refer to hidden assets as “OJ money.” We’ll discuss some of the strategies around this in broad terms, but it would also be beneficial to join our tax and asset protection workshop to learn more about the ins and outs of asset protection in more detail.
How to Hide Assets from Public Record
Now that we’ve talked through the examples of why it’s important to conceal your assets from public record, let’s talk about the legal vehicles for doing so:
A limited liability company is the first step toward creating a hidden asset that is obscured from public record—but not if your name is listed on it. Think of it like this: if you put an asset down as owned by an LLC, and you are listed as a member of the LLC, well, then you’re not really hiding the assets.
This is where it’s a good idea to speak to a lawyer about setting up an LLC for real estate, business, and investments. There are some states, like Wyoming, where an LLC does not have to publicly list its members, giving you all the protections of a limited liability business structure without the vulnerability of having your name publicly associated with it.
2. Land Trusts
A land trust is a legal entity that takes ownership of real property (land) at the request of the grantor, who requests a trustee to manage the land trust; the assets of which are enjoyed by the beneficiary.
The good news is that you can be the beneficiary and the grantor. And in most cases, you can avoid listing your name as the beneficiary by using an LLC instead—especially if the LLC is formed in a state where you (the member) can keep your name off the legal paperwork on file.
3. Holding Trusts
A holding trust is often just another name for a land trust, so be sure to ask your legal business advisor to distinguish what type of trust they’ll be using for hiding assets and any noteworthy differences they may have.
Generally speaking, though, these types of trusts are not an irrevocable trust, but a revocable trust that can be amended or changed during your lifetime. Keep in mind that if a lawyer or holding company possesses the deed and title to your property, you are still able to make use of it. However, there may be financial or tax implications associated with this strategy, especially when it comes to the homestead exemption in certain states.
You may be wondering about the extant financial obligations you still have on the property, even if you’ve hidden the title. Will your mortgage appear on a public records search? Nope! Remember, financial information is never part of public record.
4. Retirement Accounts
The good news is that a financial document, like a bank statement or a record of investing activity, cannot be part of a public record. This also means that a forensic accountant hired by a litigating attorney to uncover hidden assets cannot call your bank and find out how much money is in your checking or retirement accounts. In fact, they won’t even know which bank to call because that information is not public either.
It’s important from a risk management standpoint to be vigilant against phishing attempts, because in addition to stealing money, sometimes these parties will sell your information, and you never know if that information will make its way to a litigator, private investigator, or disgruntled family member.
5. Business Ownership
Business ownership is the jackpot for litigation attorneys because it is often where they have the best chance of realizing a recovery for damages. No matter what your business is, you’re going to want to create some sort of business structure that keeps your name off the business.
For instance, you can leverage some of the same strategies discussed above relating to real estate—namely, creating an LLC in a state where you are not required to be named as a member. You might think that creating an actual corporation would afford you better asset protection, and in some cases it does. But in other cases, it can leave you and/or your business assets more vulnerable to creditors and lawsuits.
Speak to an attorney who is familiar with the laws of how to limit personal liability. Also keep in mind that if you have a licensed business (one that requires professional licensure or accreditation), you may not be able to keep your name off the business, and will need to explore alternative strategies.
6. Cars, Boats, and RVs
You usually don’t need to worry about movable assets like these. A litigation attorney wants to go after something that can be foreclosed and/or liquidated, like a home or business. The entirety of that process can take years to actualize, so something like a vehicle that already loses value year after year is not an attractive option.
Even a luxury vehicle is often not worth hiding because vehicles are extremely hard to liquidate effectively. They are also at constant risk of getting damaged, thereby reducing their value. Additionally, nobody will be able to touch a vehicle that is being leased, and vehicles that are still being paid off will force the litigator to find your lender as well.
If you feel that you have a unique situation, such as owning a sizable yacht or RV, speak to an attorney about how to hide these assets effectively, because putting them into an LLC with no clear indication of an actual business interest might not be the most effective solution.
Can you Hide Assets for Divorce or Bankruptcy?
If someone is going through the divorce process, they may be wondering if they can hide assets from their spouse in order to avoid losing property during divorce proceedings or to deflect claims for child support or alimony.
While that might sound immoral, there will be instances where a disgruntled ex-spouse will attempt to claim more than a justifiable share of what they need out of spite. Seek the legal advice of a divorce attorney, as the process requires discretion and thoughtfulness that balances family law and ethics.
In some states, without a prenup, marital property becomes community property that you will not be able to hide. And in some instances, even if you hide an asset, your divorcing spouse may relentlessly pursue it, creating years of stress and legal expenses.
Aside from property division during a complex divorce, there may be other reasons you wish to obscure personal assets or business assets, such as in the event of a bankruptcy. In these instances, you should speak to an attorney to avoid doing anything that may cause future legal problems.
Obscurity Through Security: The Best Way to Hide Assets from a Lawsuit
There are plenty of instances where someone could come along with a frivolous lawsuit (or even a justified lawsuit), do a little exploring by way of a public record search to see how deep your pockets are, and then sue you. What you and your attorney need to do is create a low percentage of certainty in terms of recovery so that a litigator’s initial assessment is enough to drive them away from pursuing litigation in the first place. A bird in the hand is worth two in the bush, as the old adage goes. Don’t let them see that you have two in the bush.
Schedule a free strategy session today to see how you can leverage simple asset protection strategies to keep your investments safe for many years to come.
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