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TJ, Esq.
TJ, Esq., Attorney
Category: Real Estate Law
Satisfied Customers: 9853
Experience:  JD, MBA
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I just finished a divorce. My credit is bad, but I am rebuilding

Customer Question

I just finished a divorce. My credit is bad, but I am rebuilding and current on all of my debts. I still own one property which I use as an investment and to bring in a little extra income. What is my best way to protect this property? I own my own consulting company (S corp) and have an LLC (call it Holding LLC). I want to protect all of my current and future assets from any type of future issue, like a divorce - as if ill ever get married again, or some creditor. I was thinking of creating a real estate LLC for the property and having both my consulting Scorp and the new LLC be owned by the Holding LLC. Does this make sense?
Submitted: 1 year ago.
Category: Real Estate Law
Expert:  TJ, Esq. replied 1 year ago.
Hello and thank you for allowing me the opportunity to assist you.

Q: I want to protect all of my current and future assets from any type of future issue, like a divorce - as if ill ever get married again, or some creditor.

A: You can protect your assets from a divorce by keeping them in your name alone, and by having your future spouse sign a prenuptial agreement in which you both agree that the assets remain yours. You would want to be sure that your future spouse has an attorney to advise him/her so that there can be no claims that he/she was somehow taken advantage of when signing. Putting your assets into an LLC and/or corporations does not protect them from a future spouse at all. You own one property, and while that may be owned by an LLC, who owns the LLC? You do. So the LLC is an asset that can be reached by a future spouse, and that is why a prenuptial agreement is the best way to protect it.

With regard to your creditors, the same principles apply. The LLC may own the property, but you own the LLC. So what would stop a creditor from taking the LLC to get at the property? Because of that, putting assets into LLCs and corporations will not really accomplish what you want. The only way to really protect the assets from creditors is to put them in a revocable trust and make somebody else the beneficiary. If you do that, then creditors would not be able to take the assets because you do not own them, and you are not even a beneficiary. Obviously, the main problem is who will be the beneficiary? The other problem is that the trust would need to be managed in the best interests of the beneficiary rather than in your best interests.

The botXXXXX XXXXXne is that it's impossible to own and control assets and simultaneously protect them from your creditors. If it were that simple, then everybody would take those steps, file for bankruptcy to avoid their debts, and then live life happily ever after with their assets. You can take some measures to protect the assets for other people (such as putting them in a trust), but not really for yourself.

As an aside, putting the property in an LLC will give the opposite type of protection. In other words, if the LLC has a debt due to the house, then you would be protected from the LLC's creditors. That is the main purpose of LLCs and corporations. A very real and simple example will likely put it all in perspective: Let's say you own 100 shares of Google stock. You are an owner of Google, right? If you negligently cause a car accident and are sued, your shares of Google stock could be in jeopardy of being taken. The fact that Google is a corporation doesn't help you at all. On the other hand, if Google does something negligent and is sued, then you, as an owner of Google, are not personally liable. Your other assets are safe from Google's creditors. The exact same principles apply to your small one person owned LLC or corporation.

Does that answer your question? Please let me know if you need clarification, as I am happy to continue helping you until you are satisfied. Also, your positive feedback is much appreciated. Thank you for using our service!

If you would like to direct additional legal questions to me in the future, then please type "To VAMD" in the subject line of your question.
Customer: replied 1 year ago.

Thanks, XXXXX XXXXX things a little clearer for me. But - how then does the proxy work? Wyoming has anonymous ownership and proxy. Also - revocable trust or living trust?


 


If I setup a revocable trust with my brother as the beneficiary - can I have him sign an anonymous proxy back to me which would allow me to serve my interests while still making him the beneficiary?


 


Also, with a revocable trust in this situation, would any of his liability come back to the trust - if he has any?


 


Finally - from all of this - would it make sense then to setup a revocable trust with my brother as beneficiary, and with an anonymous proxy back to me? Then have that trust own everything?


 


Thanks!

Expert:  TJ, Esq. replied 1 year ago.
Hi again.

Q: "But - how then does the proxy work? Wyoming has anonymous ownership and proxy."
A: Being anonymous will not protect the LLC from your own creditors. If a creditor were to obtain a judgment against you, then you would be required to provide a list of all of your assets, including the LLC.

Q: " Also - revocable trust or living trust?"
A: It can be a living trust (which simply means that you've created it while your alive, rather than after your death), but it would have to be irrevocable, which means that you no longer have a legal interest in the assets that are in the trust. So, they are no longer yours. That is why your creditors would not be able to take the assets. If the trust were revocable, then your creditors could get at the assets because you would still have an interest in them (i.e., you could revoke the trust and use the assets).

Q: If I setup a revocable trust with my brother as the beneficiary - can I have him sign an anonymous proxy back to me which would allow me to serve my interests while still making him the beneficiary?
A: That would not do what you want it to do. The assets would be at risk.

Q: If I setup a revocable trust with my brother as the beneficiary - can I have him sign an anonymous proxy back to me which would allow me to serve my interests while still making him the beneficiary?
A: You can create a trust such that the beneficiary's creditors cannot get at the assets. I recently put somebody in bankruptcy who is the beneficiary of a trust worth $500,000. But she personally didn't have two nickels to rub together because the trust was discretionary (i.e., the trustee had absolute discretion as to when and if she would get the assets). So, she had no power to get at the assets herself, as it was all up to the trustee. For the same reason, her creditors could not get at the trust. Her creditors can have no greater power over the trust that she herself had. She had none, so her creditors had none. After he bankruptcy was completed, the trustee could give her all the money and her creditors are out of luck. The same would be true in your case with your brother.

Q: Finally - from all of this - would it make sense then to setup a revocable trust with my brother as beneficiary, and with an anonymous proxy back to me? Then have that trust own everything?
A: That would not work, as stated above. The trust would have to be irrevocable. Moreover, if you have power over the trust and use the trust's assets for your own benefit, then it's just a scam that your creditors can get around. The reason an irrevocable trust can protect assets from the trustor (you in this case) is because the trustor has no power over the assets and cannot use them for his own benefit. If it can be shown that the trust is just a shell used to trick creditors, then they can defeat it.
Customer: replied 1 year ago.

Great. Much clearer. One final (I think) question. In your original response you said revocable trust - did you mean irrevocable?


 


Meaning, If I setup an irrevocable trust, with my brother as the trustee - the trust would have the asset, he would have control. the assets would be protected from anyone of his or my creditors but We would not be able to access the properties other than how they were discetionarily pportioned??? :) trying here... thanks.

Expert:  TJ, Esq. replied 1 year ago.
Hi again.

Q: In your original response you said revocable trust - did you mean irrevocable?
A: Yes!!! My apologies. I meant irrevocable. I was wondering why you were saying "revocable" so often. Thank you for catching that, and I am sorry for the typo!

Q: If I setup an irrevocable trust, with my brother as the trustee - the trust would have the asset, he would have control. the assets would be protected from anyone of his or my creditors but We would not be able to access the properties other than how they were discetionarily pportioned???
A: If the brother is trustee and beneficiary of a discretionary trust, then the trust is pointless, and would provide no protection from his creditors. He'd have the power to give himself distributions from the trust. So his creditors would be able to go after the assets.

How about this: You put the assets in a discretionary trust where you are the beneficiary, and where your brother is the trustee. Your brother would have all of the control so your creditors would not be able to get at the assets. Since you are the beneficiary, your brother would not be able to use the assets for himself. And since he's merely the trustee holding the assets in trust for you, his creditors would not be able to get at the assets. In that scenario, your brother would have total control over the assets, however, so you'd have to really trust him. :)

I hope that helps. And obviously, you'd want to have a local attorney draft the trust agreement.
TJ, Esq., Attorney
Category: Real Estate Law
Satisfied Customers: 9853
Experience: JD, MBA
TJ, Esq. and 5 other Real Estate Law Specialists are ready to help you
Customer: replied 1 year ago.

That is perfect! Thank you!

Expert:  TJ, Esq. replied 1 year ago.
You're quite welcome. Your question got me brainstorming. I wish you luck!

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