Do HELOCs actually provide asset protection?

Question

I've heard that HELOCs provide asset protection. Let's say I own and live in my own residence and take a HELOC (but not withdraw the money). I don't see how this protects me. Can a lawyer not find out that it is a HELOC and that the money was not withdrawn?

Or take a rental property. I am allowed to take a HELOC on it?

In both cases, am I legally protected, or is the idea of a HELOC just that the creditor does not know, and has no way of knowing, that there are any assets to go after?

Cameron Skinner · Answer

every state is different but in Florida your primary residence is judgement proof. Google "OJ Simpson asset protection". Meaning they can't take your personal home.  Most states have similar statutes but usually cap out at around 250k.  When it comes to lien law it's when the Lien is recorded not when the money is drawn out.  Especially in bankruptcy court if they can track where you sent the money you took out of your line within 2 years of filing bankruptcy they can call it an illegal convence and get the money, say you gave it to your mom.  Even some cases where they took it back from charities.   What they can do and what is cost effective to do are two different things.  The big thing with asset protection, is to just make it so hard and costly to go after your assets that it's not worth it. And a Heloc would help with this, because they know you can draw the equity out of your home and go on a expensive vacation, or gamble it away or whatever.

Donald M. · Answer

So if my primary residence is judgment-proof, is it possible to take a HELOC on a rental property and in general do you recommend it, all other things being equal? Just as an asset protection step.

Chris Soignier · Answer

A HELOC just puts a lien on your property.    If there's no balance owed, a subordinate claim holder could still try to force foreclosure, and if the HELOC balance is $0, it won't have gotten you anything.

HELOC's are financing, not asset protection, tools.    I always recommend using the right tool for the job (LLC's, insurance, trusts, etc.)