by: Begley Law Group

by Thomas D. Begley, Jr., Esquire, CELA, and Joellen C. Meckley, Esquire

This is the first of a two-part series (the second part can be found here) designed to discuss various asset protection strategies for clients doing Estate Planning who are concerned about the possibility of future claims.  Typically, but not always, these clients are professionals or own their own business.

There are a number of strategies that are used to protect assets from creditors.  Some of them work, some of them do not.  Some work with limitations.  In considering asset protection strategies the Uniform Voidable Transactions Act (formerly known as the Uniform Fraudulent Transfer Act) must be considered.  This Act was adopted in New Jersey on August 10, 2021 and makes various revisions to the Uniform Fraudulent Transfer Act (R.S.N.J. 25:2-20).  A transfer is fraudulent if it is intended to hinder, delay or defraud any creditor of the debtor.  In determining intent, consideration is given to a number of factors including:

  • whether before the transfer was made the debtor has been sued or threated with suit,
  • the transfer was of substantially all of the debtor’s assets,
  • the debtor was insolvent or became insolvent shortly after the transfer was made, or
  • the transfer occurred shortly before or shortly after a substantial debt was incurred.

The debtor is insolvent if, at a fair valuation, the sum of the debtor’s debts is greater than the sum of the debtor’s assets.  A debtor who is not paying his debts is presumed to be insolvent.  Generally, a transfer is fraudulent if the debtor does not receive a return of real market value.  An attorney can be held liable for fraudulent transfers by a client.  The attorney has a duty to “know your client.”

Common asset protection strategies include the following:

Assets in the Name of a Spouse

Assets in the name of the non-debtor spouse are generally exempt from claims of the debtor’s spouse, except under the “Doctrine of Necessities.”  The Doctrine of Necessities holds that one spouse is responsible for the “health and well-being” of the other.  This would include unpaid medical bills of the debtor’s spouse.  Acquiring or placing assets in the name of a non-debtor spouse might be a good strategy for asset protection purposes, but tax implications must be considered.

Tenants by the Entirety

Tenants by the Entirety is a form of ownership reserved for married couples, and in New Jersey, is limited to joint ownership of real property.  As a general rule, assets held as tenants by the entirety are exempt from the creditors of one spouse but are still vulnerable when both spouses are responsible for the debt.  In New Jersey a creditor cannot force a partition of property owned as tenants by the entirety when only one spouse holds the debt.  However, the proceeds of the sale of a home appear to be exempt only to the extent that the home was a “home of modest value.”  This exemption may not apply is the home is very valuable.  Also, if a debtor goes bankrupt, it is unsettled whether a creditor can execute and levy on the debtor’s interest in tenants by the entirety property.  Tenants by the entirety property does not offer protection from the Internal Revenue Service (“IRS”) when one spouse owes federal taxes.  The IRS can seek partition in this case.

Tenants by the entirety does not offer protection if:

  • there is a divorce;
  • there is death of the non-debtor spouse; or
  • the creditor is a creditor of both spouses.

Life Insurance

Life insurance is generally exempt from claims of creditors, if the beneficiary:

  • is not the insured or the estate of the insured; and
  • is not the person who effected the policy or the estate of that person.

But the amount of premiums paid within the statute of limitations for bankruptcy will inure to the benefit of the creditors.


Inheritances are available to the creditors of the estate beneficiary.  The solution is for the testator to include a spendthrift trust for any beneficiaries who have creditor issues in his or her estate plan, and to ensure that all applicable beneficiary designations direct into the spendthrift trust.


There are several types of annuities.  One is a revocable annuity, which the owner can liquidate at any time.  This would be subject to claims of creditors.  Another type of annuity is an assignable annuity.  This would also be subject to claims of creditors.  Another type of annuity is an irrevocable non-assignable annuity, which cannot be liquidated by the owner or annuitant.  Irrevocable non-assignable annuities are exempt from claims of creditors until distributions are made.  However, distributions from irrevocable, non-assignable annuities are subject to claims of creditors.  However, in Bankruptcy Court in New Jersey, $500 per month of annuity benefits is automatically exempt from claims of creditors.  A court may allow an additional exemption given the requirements of the beneficiary and/or the beneficiary’s family.

Retirement Plans

There is a distinction between an IRA and an employer-sponsored retirement plan.  In New Jersey all plans, including IRAs, are generally exempt from creditor claims, until the money is distributed.  In most other states IRAs are exempt subject to a $1,000,000 cap (subject to adjustment for inflation) and that is $1,362,800 in 2021.  This amount will change on April 1, 2022.  There are exemptions from creditor protection for retirement accounts.  These include:

  • federal tax levies;
  • divorce; and
  • inherited IRAs in bankruptcies.

However, some courts have not followed the inherited IRA exception.


New Jersey and Pennsylvania are the only two states in the Union that do not offer homestead protection from claims of creditors.  Minimal protection is available in bankruptcy court.