Some assets enjoy legal protection from creditors. Under ERISA, for example, the federal law covering retirement plans, funds held in employer-sponsored plans are sheltered. Therefore, contributions to such plans offer asset protection as well as tax deferral.
Not all retirement plans are covered by ERISA. Non-ERISA plans, notably IRAs, are covered by state laws, which vary widely.
Consequently, in states where IRAs have only limited protection from creditors, keeping those funds inside a former employer’s plan may be a wise decision, even after retirement.
Beyond retirement plans, other assets may enjoy some creditor protection.
Some states have “homestead” laws that protect a homeowner’s principal residence from creditors, even if the house is extremely valuable.
If such homestead protection is not available, proper titling can be vital. A principal residence might be owned jointly, by a form of ownership known as “tenancy by the entireties,” or by the spouse least likely to be sued, depending on a state’s asset protection laws.
Life insurance policies and annuity contracts may enjoy creditor protection in some states, especially if a spouse or child is the beneficiary. Individuals who live in states that shelter these assets might want to do some of their investing through variable annuities or variable life insurance policies.