# Asset Retirement Obligation: Definition and Examples

## What Is Asset Protection?

Asset protection is the adoption of strategies to guard one's wealth. Asset protection is a component of financial planning intended to protect one's assets from [creditor](https://www.investopedia.com/terms/c/creditor.asp) claims. Individuals and business entities use asset protection techniques to limit creditors' access to certain valuable assets while operating within the bounds of debtor-creditor law.

### Key Takeaways

*   Asset protection refers to strategies used to guard one's wealth from taxation, seizure, or other losses.
*   Asset protection helps insulate assets in a legal manner without engaging in the illegal practices of concealment (hiding of the assets), contempt, fraudulent transfer (as defined in the 1984 Uniform Fraudulent Transfer Act), tax evasion, or bankruptcy fraud.
*   Jointly-held property under the coverage of tenants by entirety can work as a form of asset protection.

## Understanding Asset Protection

Asset protection helps insulate assets in a legal manner without engaging in the illegal practices of [concealment](https://www.investopedia.com/terms/c/concealment.asp) (hiding of the assets), contempt, fraudulent transfer (as defined in the 1984 Uniform Fraudulent Transfer Act), [tax evasion](https://www.investopedia.com/terms/t/taxevasion.asp), or bankruptcy fraud.

Experts advise that effective asset protection begins before a claim or liability occurs since it is usually too late to initiate any worthwhile protection after the fact. Some common methods for asset protection include [asset protection trusts](https://www.investopedia.com/terms/a/asset-protection-trust.asp), accounts-receivable financing, and [family limited partnerships](https://www.investopedia.com/terms/f/familylimitedpartnership.asp) (FLP).

If a [debtor](https://www.investopedia.com/terms/d/debtor.asp) has few assets, bankruptcy may be considered the more favorable route compared to establishing a plan for asset protection. If significant assets are involved, however, proactive asset protection is typically advised.

Certain assets, such as retirement plans, are exempt from creditors under United States federal bankruptcy and [ERISA](https://www.investopedia.com/terms/e/erisa.asp) (the Employee Retirement Income Security Act of 1974) laws. In addition, many states allow exemptions for a specified amount of [home equity](https://www.investopedia.com/terms/h/home_equity.asp) in a primary residence (homestead) and other personal property such as clothing.

> **Important**
>
> Each state in the United States has laws to protect owners of corporations, limited partnerships (LPs), and limited liability corporations (LLCs) from the entity's liabilities.

## Asset Protection and Real Estate

Jointly-held property under the coverage of [tenants by entirety](https://www.investopedia.com/terms/t/tbe.asp) can work as a form of asset protection. Married couples who hold mutual interest in property under tenants by entirety share a claim to a whole piece of property and not subdivisions of it.

The combined ownership of the property means that creditors who have [liens](https://www.investopedia.com/terms/l/lien.asp) and other claims against one spouse cannot attach the property for their debt reclamation efforts. If a creditor has claims against both spouses, the tenants by entirety stipulations would not protect the asset from being pursued by that creditor.

Some attempts at asset protection include putting the property or financial resource in the name of a family member or other trusted associate. For example, an [heir](https://www.investopedia.com/terms/h/heir.asp) might be gifted ownership of real estate or other property while the actual owner continues to reside in the property or make use of it. This could complicate efforts to seize property as actual ownership must be determined. Financial accounts may also be domiciled in [offshore](https://www.investopedia.com/terms/o/offshore.asp) banks in order to legally avoid paying taxes against those funds.