Asset Protection Planning ("APP") is something we do to put ourselves and our loved ones in the optimum position to respond to creditors. Creditors have an array of weapons that they can use against debtors, and the best defense against those weapons is a strategy that will slow a creditor down or stop the creditor in his or her its tracks. APP is never to be used to help somebody get away with not paying a legitimate debt, but it can be used to create a level playing field where disputed claims can be resolved fairly.
To understand APP strategies and be able to use them effectively, you need to understand the concept of "inside out" vs. "outside in" liability.
The classic example of "inside out" liability is when a business activity somehow goes awry and somebody gets hurt financially or physically or both. The aggrieved party will come looking for a way to be made whole, starting with the business and its assets. However, if the claim cannot be satisfied at that level, the creditor will try to follow the business owners home to see what else they own, in hopes of satisfaction out of those additional assets. In other words, liability arising inside the business strikes assets that are outside, and unrelated to, the business.
But what if the claim arises outside the business and cannot be satisfied with non-business assets? For example, if one of the business owners gets in a car accident while on vacation and not on company company time, the aggrieved party will try to get satisfaction out of whatever the business owner owns--including his or her interest in the business. In this example, liability is coming from the outside, and the creditor is hoping to be paid by the business (or out of the offending party's share of the business), even though the claim has nothing to do with the business. This is "outside in" liability.
An effective APP looks at the risks of "inside out" and "outside in" liability and tries to protect against both. The plan will often involve layered strategies to accomplish its mission, including corporations, limited liability companies, and trusts.