Distressed California Winery Owners Have Ways to Protect Assets

The California wine industry is in its worst stretch in a generation. Robledo Family Winery filed for Chapter 11 bankruptcy in April. Aloria Vineyards and Sran Vineyards did so weeks earlier. And Vintage Wine Estates filed in 2024 with $310 million in debt. Industry revenue has fallen roughly 21% since 2020.

Coverage has focused on the businesses. The question for practitioners is what California law permits in protecting the owners personally.

Most winery owners sign personal guarantees to finance their operations, harvest, or equipment. Economic injury disaster loans from the Small Business Administration more than $500,000 also come with a personal guarantee. But winery owners can take steps to protect their personal assets from these personal guarantees.

California is a difficult jurisdiction for debtors. It has no domestic asset protection trust, or DAPT, statute. Cal. Prob. Code Section 15304 voids self-settled spendthrift provisions.

California’s Uniform Voidable Transactions Act, or UVTA, is among the most aggressively enforced in the country. California is a community property state. And its individual retirement account exemption under Cal. Code Civ. Proc. Section 704.115(e) protects only amounts reasonably necessary for the support of the judgment debtor when the judgment debtor retires, far less than the unlimited exemption in many other states.

Limited Exemptions

California has two meaningful exemptions from creditor claims. For the primary residence homestead exemption, approximately $750,000 (capped at $650,000 and adjusted for inflation) of equity is exempt. Cal. Code Civ. Proc. Section 704.730. The homestead exemption protects the owner’s principal residence—not the vineyard, winery building, or tasting room.

California also has a limited exemption for individual retirement accounts, where a needs-based standard is applied by the courts to test for exemption. Historically, this standard has been applied liberally in the creditor’s favor, and we usually advise our clients not to rely on it.

Community Property Trap

Community property in California is liable for debts incurred by either spouse, regardless of which spouse incurred the debt. Even when only one spouse signs the personal guarantee, all community property is reachable.

Pre-distress transmutation under Cal. Fam. Code Sections 850 through 853 can convert community property to separate property of the non-signing spouse, but transmutations executed in the shadow of a known or imminent creditor face UVTA scrutiny and routinely fail. Transmutations done well in advance, for credible estate planning reasons, survive.

Why DAPTs Fail

An irrevocable trust is one of the cornerstone asset protection structures, and the DAPT variation is heavily marketed. DAPTs, available in many states, permit a debtor to protect assets by setting up a trust for their own benefit. But these self-settled trusts are the wrong structure for California winery owners.

First, the retained beneficial interest makes a DAPT vulnerable to alter ego and sham trust attacks—in which the trust us ignored as a separate legal person, similar to piercing the corporate veil of a legal entity—which would cause the trust to be ignored as a separate legal person. Second, 11 USC Section 548(e) gives the bankruptcy trustee a 10-year reach against self-settled trusts where the debtor is a beneficiary and the transfer was made with actual intent to hinder, delay, or defraud—five times the general two-year window under Section 548(a)(1).

Third, DAPT-state protection may not follow the settlor across state lines. The US Bankruptcy Court in the Western District of Washington held in In re Huber that a Washington state resident’s Alaska DAPT was governed by Washington law (which voids self-settled spendthrift provisions), as Washington had the more significant relationship.

The same analysis applies to California-resident settlors of Nevada or Delaware DAPTs given the strong public policy in Cal. Prob. Code Section 15304.

Irrevocable Trust Alternative

The structure that works in California is an irrevocable trust for the benefit of the settlor’s children, grandchildren, or other family members, with the settlor excluded as a beneficiary. The alter ego argument is far weaker without a retained beneficial interest. Section 548(e)'s 10-year reach doesn’t apply. No conflict-of-laws problem arises around self-settled spendthrift validity.

Flexibility comes from a trust protector. The instrument can give a third party (a trusted adviser or family friend, never the settlor) powers to remove and replace trustees, add or remove beneficiaries within a defined class, modify administrative provisions, change the trust situs, terminate or revoke the trust, and adjust distribution standards. The settlor doesn’t control the trust, but a properly structured protector can respond to changed circumstances.

The intelligent wealth trust is an improved iteration. It begins as a revocable living trust and contains built-in triggers that automatically convert it to an irrevocable asset protection trust when a creditor threat arises. For liquid assets requiring maximum protection, an offshore trust in a jurisdiction such as Saint Vincent and the Grenadines pairs well with the family trust, with assets custodied overseas so US courts lack personal jurisdiction over the trustee or the property.

California’s Time Window

California’s UVTA gives a four-year reach for actual intent claims, with a one-year discovery rule and a seven-year outer limit. The bankruptcy trustee imports those state-law periods through 11 USC Section 544(b), extending the practical lookback well beyond Section 548’s two years.

Planning that looks safe under a federal-only analysis is often vulnerable under California’s window. The safest transfers are completed before the creditor relationship deteriorates.

What Is Achievable

The structures that work combine:

• Full use of the homestead exemption
• Transmutation of community property where the timing permits
• Irrevocable family trusts equipped with a trust protector
• Offshore trust structures for liquid assets
• LLCs with charging order protection under Cal. Corp. Code Section 17705.03
• Rolling over individual retirement accounts into ERISA-protected pension plans, and intra-family sales of operating business components to intentionally defective grantor trusts at appraised value paid by promissory note

The goal isn’t to defeat legitimate creditors, but to make collection uncertain and expensive enough that commercial creditors negotiate. After more than 20 years of doing this work, almost all of the commercial creditors we have negotiated with have settled—often for nuisance value when the planning was done early enough. The practitioner should improve the client’s position before that negotiation begins.

An immaterial amount of this content was drafted by generative artificial intelligence.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Jacob Stein is an asset protection attorney and the global chair of the private client practice at Aliant, focusing on protecting assets from creditor claims.

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