With the current housing market causing untold numbers of bankruptcies and foreclosures many homeowners are asking how they can protect their business and personal assets from creditors. One of the greatest tools for protecting your assets is a carefully drafted Limited Partnership.

In the event of a bankruptcy, the Limited Partnership Agreement controls the assets inside of a Limited Partnership. For example, if a partner with 20% interest applies for bankruptcy their 20% ownership can now be turned over to the bankruptcy trustee. The bankruptcy trustee only has minimal rights associated to the 20%. It is critical that the language of the Limited Partnership have provisions that provide protection and removal of a partner in the event of bankruptcy or foreclosure, therefore preventing the trustee from taking any control of the partnership. The trustee cannot even be a limited partner or a substituted limited partner. The bankruptcy trustee can only be presumed to be an assignee of potential income. Hence, the bankruptcy trustee has almost no negative impact on the partnership. The partnership must however, be established before the bankruptcy can reasonably be anticipated.

Keep in mind this does not mean you can set up a Limited Partnership for the sole purpose of protecting your assets in the event of a bankruptcy or foreclosure.  This would be called a fraudulent conveyance and all protections would be void.

 A transaction is considered to be "actually fraudulent" if it was made with the intent to hinder, delay, or defraud any creditor of the debtor without receiving a reasonably equivalent value in exchange for the transaction or obligation. Before making entity structuring transfers it's important to ask yourself two questions. First, what is your motive for the transfer? Second, have you received reasonable value for the transfer?

A Limited Partnership can protect assets in just about any situation if you have a properly drafted agreement and have planned beforehand with the right intentions. For more information on properly drafted Limited Partnerships see our website at http://www.protectwealth.org/

Legal Disclaimer:  No earnings claims, warranties, or specific investment advice is allowed to be given from this office.  Any information contained in this newsletter is for illustrative or educational purposes only and is not intended to constitute specific legal, tax, or financial advice to any one person or organization.  The content of this communication has been developed from sources, including publications and research, which is considered and believed to be reliable, but cannot be guaranteed insofar as they apply to any particular situation.  Moreover, because of the technical nature of the material and the fact that laws are never static, but ever changing, the assistance of a competent, qualified attorney or accountant is recommended when implementing any plans or ideas discussed herein.
 
Tax Advice Disclosure: To ensure compliance with requirements imposed by the IRS under Circular 230, we inform you that any U.S. federal tax strategies contained in this communication (including any attachments), unless otherwise specifically stated, was not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any matters addressed herein.