HOW TO PROTECT YOUR ASSETS AGAINST POTENTIAL CREDITORS

In case of litigation or legal disputes, our lawyers can help protect your personal assets against seizure by a potential creditor.

INCORPORATION

A corporation possesses its own legal personality separate from that of its shareholders. By shielding personal assets from a corporation’s creditors, shareholders obtain asset protection and peace of mind while running a business.

HOLDING CORPORATION

This strategy allows for the separation of a corporation’s activities into two separate entities: the operating company and the holding company. The operating company handles day-to-day operations of the business while the holding company contains the business’ investments and excess cash. In case of a lawsuit, assets found in the holding company can be protected from court claims.

LOANS BETWEEN CORPORATIONS GUARANTEED BY A MOVABLE HYPOTHEC

This strategy allows for the operating company’s assets to be protected in case of a legal action. Instead of borrowing money from a bank, the operating company borrows working capital from the holding company. In exchange, the operating company grants a hypothec on the universality of its property (trucks, equipment etc.) in favor of the holding company.​

Given that the holding company has a hypothec on the property of the operating company, the property of the latter is protected from seizure by creditors. This is because the hypothec held by the holding company would rank ahead of any other creditor’s rank.

ASSET PROTECTION TRUST (OR PRINCIPAL RESIDENCE TRUST)

This inter vivos trust is created by drafting a private document and then transferring valuable real real estate into it such as a principal residence. Since a trust has a separate legal personality distinct from the person who created it, should a lawsuit occur, creditors will not be able to seize property held in the trust.

This strategy is useful and often recommended for individuals with no mortgage on their home or who have at least $350,000 of equity in their residence.

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