For years, business owners have relied on corporations, LLCs, and trusts to shield their wealth from creditors. But what happens when courts decide that these structures are nothing more than legal illusions? In 2025, the legal landscape is shifting, and courts are increasingly willing to dismantle asset protection strategies that fail to meet legal scrutiny.
The core principle of asset protection has always been simple: don’t own assets in your name. Instead, individuals and businesses transfer them into irrevocable trusts or legal entities like LLCs. This works—until it doesn’t. When these transfers happen under questionable circumstances, such as right before a lawsuit or financial claim, courts may view them as fraudulent or voidable. And even if the transfers are made in good faith, failure to treat these legal structures as separate entities can still leave assets exposed.
Courts traditionally respect corporate structures, recognizing them as separate legal persons from their owners. This separation is what allows business owners to avoid personal liability for their entity’s debts. But when courts suspect that an entity is nothing more than an extension of its owner—a mere alter ego—judges can use the legal doctrine of piercing the corporate veil to hold the owners personally accountable. This is no longer a rare occurrence. Recent cases show a growing trend of courts scrutinizing and dismantling poorly maintained asset protection structures.
Take Citibank, N.A. v. Aralpa Holdings, a case that sent shockwaves through the asset protection world. In this New York federal case, multiple single-member LLCs were stripped of their limited liability protections after the court determined that they existed solely to protect the owner’s luxury real estate from creditors. The LLCs had no distinct business function, were entirely controlled by one person, and had their expenses paid directly from the owner’s personal accounts. The ruling was clear: if an entity is nothing more than a legal fiction, it cannot serve as a shield against creditors.
A similar ruling came in In re Ashley Albright, where a Colorado bankruptcy court decided that a single-member LLC offered no meaningful protection when the owner exercised total control without following corporate formalities. Since Albright was the sole member and failed to establish any independent decision-making for the LLC, the court ruled that the company’s assets were indistinguishable from her personal assets. As a result, creditors were granted direct access to the LLC’s property.
These cases illustrate a legal shift—judges are no longer hesitating to look beyond paperwork and determine whether an entity operates as a genuine business or a personal piggy bank. Courts tend to scrutinize businesses that fail to maintain separate accounts, engage in self-dealing, or use LLCs and trusts as little more than asset-holding shells.
So, what does this mean for business owners and high-net-worth individuals? It’s a wake-up call. Asset protection still works, but only if done right. Corporate formalities matter. Treating an LLC or trust as a distinct, independent entity—rather than an extension of personal finances—is crucial. That means keeping finances separate, properly documenting transactions, and adhering to governance requirements. Single-member LLCs are particularly vulnerable, and owners should consider adding a second member or strengthening operating agreements to reinforce the entity’s legitimacy.
Another critical factor is financial health. Courts are highly skeptical of undercapitalized businesses—companies that have no real assets or income beyond the personal wealth of their owners. If an entity appears to exist solely as a legal shield rather than a functioning business, judges are more likely to pierce the corporate veil.
Transparency is another key consideration. Transactions between related entities should be properly documented and conducted at arm’s length. Courts often look for signs that an owner is moving money or assets between entities in an attempt to create legal distance while still maintaining personal control.
Trusts remain a valuable tool for asset protection, but only when structured correctly. A trust that is transparently controlled by its creator and used primarily for their benefit will not hold up in court. Instead, using an independent trustee, limiting direct control, and ensuring that trust assets are used according to their legal purpose can strengthen protection.
Perhaps the most important rule of all is to plan ahead. Asset protection should never be a reactionary measure taken when litigation is on the horizon. Courts are particularly unforgiving of last-minute asset transfers that appear designed to frustrate creditors. The best protection strategies are built years in advance, with structures that serve a legitimate business or estate-planning function rather than existing solely as shields.
Are your corporate structures legally sound? Would they withstand scrutiny if challenged in court? If not, it’s time to make changes. With courts increasingly willing to break through weak asset protection barriers, the best defense is a well-structured, legally compliant strategy. If you need guidance, contact me. With over 20 years of experience in complex asset protection, I can help ensure that your corporate and trust structures are built to withstand challenges, safeguarding your wealth and ensuring its long-term security.
