My question pertains to business and individual liability from civil litigation.Assume person A owns part of company B, C, and D with persons AA and BB, and companies B, C and D as well as individuals A, AA, and BB are sued civilly.Secondly, assume the same person A owns parts of companies E, D, and F with person ZZ, and neither those companies nor ZZ are related, have anything to do with, or are affiliated with the lawsuit described previously (i.e. different businesses altogether, and not parties to the lawsuit).In the event of an unfavorable civil judgment/verdict, what is the potential risk/liability to companies E, D, and F and individual ZZ's share of same? For the purposes of discussion, all entities are LLCs.
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Good afternoon. Companies E, D and F would have no liability and ZZ's share of those companies would not be at risk in any way. But, if the judgment was against A personally, then A's interest in companies E, D and F would be at risk. To protect A's assets, including the interest in E, D and F, A might want to consider putting their non-exempt assets (retirementincome and retirement account assets are exempt and can be left in place) into afamily limited partnership. Carefully drafted, this converts assets that acreditor would find attractive to go after into a limited partnership interestwith no control, no rights other than that of an assignment, notransferability, no marketability, and no right to distributions. Essentially,it is an asset no one wants and thus the creditor is less likely to pursue thedebtor. Family limited partnerships mustbe carefully drafted and one would need an attorney experience in this area todo so, but they can be a very effective method of asset protection.
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Thank you for your answer. Only one follow up. That is, if suit is already filed, the action of putting non-exempt assets into a Family Limited Partnership would be an act of fraudulent transfer, would it not?
Actually not because you are not transferring them for less than fair market value. You are simply exchanging them for a different asset. This might be contested by the creditor, but you have a decent argument to combat that and should you lose, you really are no worse off.
Practiced law for 32 years; also business man
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