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This chapter is trimmed down version of the volumes of material I have on this subject matter (in other words reading this chapter is just the beginning of your education on proper asset protection).

What is asset protection? The term used by most in the mainstream means protecting someone’s wealth from negligence lawsuits (which is what this chapter will focus on). However, I want to remind readers that there are many other creditors who are more likely to take your money than someone who files a negligence lawsuit against you.

Your number one creditor every year is the IRS. Therefore, it is important to mitigate income, capital gains, and estate taxes whenever possible.

The stock market can be a creditor. If you had money in the stock market during 2000-2002 (-46%) and 2007-2008 (-59%), then you know the stock market is a creditor. It is imperative (especially for athletes who notorious receive terrible long term financial planning advice) to make sure your money is properly allocated where you have some portion of your money in wealth building tools that will not go backwards when the stock market drops significantly.

The number one creditor of many seniors is long-term care (LTC) expenses. While most affluent athletes who have their money properly protected from market crashes should have sufficient money to pay for LTC expenses (which many times are incurred earlier in life due to sports related injuries), the average athlete will not. Even if you are considered an affluent athlete, many times it will make more sense to fund for your LTC expense now when it is most affordable (vs. paying out of pocket for the expenses when incurred). Additionally, with proper planning (many times done through a charitable foundation), athletes can fund for LTC expenses in a tax deductible manner where the accumulated money can grow tax-free and be removed tax-free.

Unique Asset Protection Problems of Athletes

There are many wonderful things about being a professional athlete. Fame and fortune are what come to mind to the average person on the street. There are millions of Americans who if asked would trade places in a heartbeat to play on an NBA, NFL, NHL, MLB, etc. team or be able to play professional golf, tennis, etc. to make a living.

As someone who played varsity soccer at The Ohio State University and golf at Embry Riddle Aeronautical University in Daytona Beach, FL, I had thoughts/dreams of becoming a professional athlete (it’s the dream of many young men and women).

However, with the “fame and fortune” some professional athletes obtain come worries and liabilities that non-athletes do not have to worry about.

Fame can be bad when you run into the wrong people in the wrong circumstances. Let me give you a classic fact patterns that we see over and over with professional athletes and entertainers.

Nightclubs—It’s no secret that some young and successful athletes like to go out on the town. Known athletes are treated many times as quasi rock stars when seen out in public. It’s an adrenaline rush for an athlete to walk into a nightclub and have everyone turn their eyes to them and knowing that many people envious of their position in life.

Unfortunately, not everyone envies athletes. Some people are jealous of their fame and fortune. Some people who drink too much change their personalities and become predisposed to fighting (they seek out fights). This can be a very bad combination in the wrong situation. Most importantly, of course, you should avoid this situation. Read Nick Warrilow’s chapter in this book for avoidance steps to take. But…

Imagine if you will a professional athlete in a nightclub who has had 4-6 drinks already and is already fairly drunk. In and of itself there is nothing per se wrong with this if the athlete is 21 years or older.

Imagine if you will a “local” crowd where some of the local women come up to a male athlete (stereotypical but this is a classic example) to say hello and try to engage in a conversation. This happens constantly to athletes regardless of whether they are in nightclubs or not.

Imagine if one of the local women is really the girlfriend of a local construction worker. Imagine if this constructions worker is 6 foot 4 inches and a mean drunk when he’s been drinking too much.

What’s going to happen? You guessed it; the local boyfriend is going to pick a fight with the professional athlete. Besides that this could end up being a public relations nightmare with everyone who has camera phones these days, this could also really end up costing the professional athlete a lot of money. How? If the local and the professional athlete get into a fight and if the athlete is unlucky enough to connect with a punch that harms the local, guess what’s coming next? A multi-million dollar lawsuit.

The lawsuit that is filed is one that the athlete has no insurance to cover and it will probably cost $100,000-$300,000 to defend the claim. Depending on the fact pattern, it is likely that the case will settle before trial for several hundred thousand dollars.

If the athlete is really unlucky, the case will go to trial and a verdict for several million dollars will be handed down by a jury that has no patience for an athlete who was portrayed as a spoiled brat with an attitude (whether that’s actually true is not the point because perception is reality in a court of law).

Is it a fair statement that the professional athlete should protect his/her assets from lawsuits like this?

What about common every day liabilities that confront everyone including professional athletes.

Driving and texting or surfing the web on a PDA—Most athletes who are currently working are under the age of 40. As such, most are tech savvy and are connected to friends, family, and their agent and/or financial planner through an I-Phone or Blackberry.

Imagine if you will an athlete driving down a two lane road with oncoming traffic. Imagine the athlete texting or surfing the web on his/her PDA. Imagine the athlete’s car veering into oncoming traffic and hitting head on the car in the other lane. Now, imagine that in that car was a family of five and that after the accident two are dead and three are in critical condition.

Of course there will be a negligence suit against the athlete driver for causing the accident. However, while most people would simply file bankruptcy and start over, an affluent athlete may actually have the money to pay a 3-5 million dollar jury verdict which is likely in this type of fact pattern.

Is it fair to say that athletes with money need asset protection from this type of a lawsuit?

Drunk Driving—While we all know it is not right to drink and drive, many people do it. This probably rings true for many athletes who like to go to dinner and have a bottle of wine or how go out on the town with teammates and friends to have a few or even too many drinks. With blood-alcohol legal limits going down each year, it does not take much to be seen as legally drunk in the eyes of the law.

Athletes should not stick their heads in the sand and have the “it won’t happen to me” syndrome when thinking about all these examples. If you drink and drive and have an accident, you will more than likely be sued personally and your assets will all be at risk.

If you simply drive negligently and cause harm to another, you will more than likely be sued and your assets will be at risk. This is not an issue for someone who rents, or lives in a $75,000 home and has a net worth of less than $50,000. Negligent actions are a problem for athletes with wealth; and if you have purchased this book, I assume you have some amount of wealth you would like to protect.

The bottom line is that professional athletes have asset protection issue the general public does not. Athletes have a big red target on their backs and many people are aiming for it. The goal of this chapter is to give athletes some practical tips for how to protect your money from typical negligence lawsuits. So let’s get started.

Divorce Protection

Besides protecting your assets from typical creditors, you might want to protect them in the event of a divorce as well. We will discuss this topic in the Estate Planning section of this book.

Long- term Care Insurance

Besides death, the one thing clients need to protect themselves against most are the expenses associated with the need for long-term care. This is a huge topic right now as more and more people are going into assisted living centers, and yet it is the one topic that most clients just refuse to pay for and plan for. You can read much more about long-term care insurance in the Estate Planning section of this book.

Estate Taxes

You might not normally think of avoiding estate taxes as asset protection; but when saving your heirs sometimes millions of dollars in estate taxes, you are asset protecting your wealth from the government. You can read about Family Limited Partnerships (FLP) or Family Limited Liability Companies (FLLC) in the Estate Planning section of the book to learn about one tool that will help you lower your taxable estate.

What Assets Should You Protect?

Most of the time when a client writes down ALL of their assets on a piece of paper, they are surprised at how much they have that needs to be protected. If you own any of the following, you are a good candidate for asset protection:

Family Home or Condominium

Rental Property

Non-Rental Property

IRA

Stocks or Mutual Funds

Life Insurance

Bank Account or CD’s

Planes, Boats, Automobiles, Water-scooters, or Motorcycles

Other business entity (especially S or C-Corp stock)

Any other collectible items that have value

Future Inheritance for Family

For many athletes there are very few things in life that are more important than protecting assets. Most athletes work hard and long hours to reach the level of achievement they have reached and to accumulate wealth; and with one negligence lawsuit, the majority of an athlete’s wealth can be taken from him/her by a creditor.

A good asset protection plan can be implemented for $2,500-$10,000, and to do so would be some of the best-spent money a client can spend. Asset protection protects the client’s family wealth and can give the client peace of mind when living what is an otherwise, stressful and hectic life.

I suggest that if you take nothing else from this chapter, you seriously consider whether you are currently asset protected; and if you are not, I hope you take action to protect your assets as soon as possible.

Asset Protection Planning

Asset protection, in general, is about putting up barriers in front of creditors to make it difficult or impossible for them to get your personal and business assets. Asset protection is NOT about hiding or concealing assets or about committing fraud to conceal assets from creditors. Good asset protection discourages lawsuits to the point where a client can bluntly state to a personal injury attorney that he/she has millions of dollars in legally “protected” assets; and, if sued, the attorney will not be able to reach any of those assets.

Legal Asset Protection

Correctly set up, asset protection plans are ones that use existing laws and are 100% legal in the eyes of the U.S. Government (and foreign governments if offshore planning is needed). It might sound obvious to the reader that an asset protection plan needs to be legal, but as you will find if you search the country for information on asset protection planning, some of the solutions are what we would call a bit edgy, or based not in law but in the absence of law.

Unlike a lot of issues dealt with in estate planning, investment planning, and income tax reduction planning, proper asset protection is a fairly black-and-white legal issue. There are certain ways to put an asset protection plan together, and when an advisor is recommending something you cannot look up (or your local attorney cannot look up), chances are there is something not on the up-and-up with the recommended plan.

Reasonable minds might differ when it comes to determining what the best asset protection plan is; but reasonable minds of asset protection attorneys should not differ when it comes to determining if the asset protection plan options are, in fact, legal.