Many California families have been very successful in accumulating valuable financial assets. Unfortunately, this wealth might attract frivolous lawsuits. Learn why a Family Limited Partnership (FLP) offers solid legal protection against frivolous lawsuits.
Court Fees, Paperwork & Time
Homeowners post signs warning potential burglars of their guard dog or home security system for deterrence. This deterrence is similar to the Family Limited Partnership, which makes it more difficult for a dishonest attorney or creditor to level a lawsuit against your family assets. Predators target the weakest members of the herd.
FLP asset protection involves establishing a limited partnership, which spreads out ownership of your banking accounts, brokerage accounts or family home. Distributions of profits can the be made to each partner.
The FLP places the following burdens on creditor access:
1. Can only become assignee
2. Cannot exercise powers over the FLP
3. Can only receive distributions
4. Gives other partners power to purchase interest of debtor partner.
Of course, all of these protections make collection very difficult and increase the debtor’s leverage for renegotiation.
Legal Precedent Supports FLP
Under the California Corporations Code, a creditor cannot seize assets in a partnership with a judgment against only one of the partners. The California Supreme Court directed that only a charging order can be used to seize distributions made from the FLP to the debtor. CallourPalm Springs trust and estate law firmto get help with asset protection.