Asset Protection in Germany
Protection of assets from creditors, ex-spouses, beneficiaries of the compulsory portion or the tax authorities
Private Wealth is not only threatened by inflation and taxes. Entrepreneurial activities, financing, divorces and succession all carry the inherent risk of significant financial losses. Therefore, it is vital to design and implement at a very early stage measures aiming at protecting both commercial and private assets. Asset protection is a multi-disciplinary service which requires the joint effort of attorneys and tax advisors.
Our asset protection services
- Incorporation of limited liability companies
- Contractual risk mitigation for directors and board members
- Allocation of assets to family members by way of donations
- Allocation of assets in foundations or companies/partnerships
- Real estate law measures aiming at mitigating enforcement exposure (e.g. registered right of residence)
- Tax optimization
- Prenuptial agreement
- Estate planning
It is important to highlight that our services should be retained as early as possible as asset transfer in view of concrete third party claims will not only be voidable but also be prosecuted as a criminal offence under German law. Therefore, our firm does not assist in concealment of assets in view of threatened or pending third party claims.
Legitimate asset protection tools
In what follows we have compiled a number asset protection measures which are good practice in Germany.
- Limitation of liability: the most effective tool for asset protection is to always aim for a limitation of liability, be it in general terms and conditions, managing director services agreements or property sales contracts. The implementation of limited liability entities is a further very important and effective tool
- Tax optimization
- Asset transfers, in particular donations to family members: If made in due time before a threat has materialized, asset transfers to family members can significantly deter creditors from pursuing their claims; yet, extra care must be applied in order to prevent such transfer from being voidable and/or criminal offences.
- Family law: German family law provides several tools which help to protect, among them tailor-made marital property regimes and prenuptial agreements.
- Succession: Statutory portions may threat the very existence of an enterprise and lead to protracted litigation among the heirs. In view of that it is imperative to retain advice in estate planning under German law early on.
- Real Estate Law: real estate can be secured against forced auction by way of registering residence rights in the land register. Such residence rights can serve as an effective deterrent against forced auction as such a right remains validly registered in the land register even if the property is auctioned off to a new owner. A new owner has the right to make a compensation payment to the beneficiary of the residence rights and thereby delete the residence right; however, such compensation payment can be prohibitively high.
- Family owned companies and partnerships: private assets can be held through companies or partnerships, the family members being the shareholders or partners. One of the key advantages of such a structure is that the assets (e.g. family home) can be effectively protected against forced auction.
- Foundations: Assets held by a foundation can serve both to protect assets and also to provide the family with the - unseizable - necessary means to pay for the cost of living
- Liability insurance: liability insurance, in particular D&O insurances are recommended. Yet, it must be noted that in case of (alleged) gross negligence many insurers will refuse payment.
Boundaries for asset protection in Germany
Asset protection is per se legal in Germany. However, statutory law has set tight boundaries which must be strictly adhered to.
- Asset transfers may be voidable pursuant to the Avoidance of Transactions Act (Anfechtungsgsetz) and the Insolvency Act (Insolvenzordnung). For instance, a transaction is voidable if the transferor intended to thwart a creditors’ enforcement intents or if assets are transferred in view of the transferor’s imminent insolvency.
- Concealment of assets can further be regarded as a criminal offence. It is therefore imperative to retain legal advice in order to avoid criminal prosecution.