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Online Asset Protection Quiz.

Is it too late to transfer my investments to a limited partnership once I've been sued?

No, but the limited partnership may then not adequately protect you. The reason is that your creditor might ignore the charging order remedy and instead attempt to set aside the transfer of your assets to the limited partnership as a fraudulent transfer. The assets would then be unprotected and subject to creditor seizure. This is a far more threatening possibility than a charging order. Creditors can recover assets fraudulently transferred to limited partnerships or any other entity. Of course, a partner's personal creditor cannot directly claim the limited partnership assets because these assets no longer belong to the debtor-partner; they are owned instead by the limited partnership.

However, the outcome of these cases chiefly depends on how you structure your limited partnership. For instance, if you and your wife each contribute equally to the limited partnership, and each receives in exchange an equal partnership interest, then the court may consider this to be a 'fair consideration' transfer and not fraudulent because you each now own one-half of the limited partnership. But, if you and your spouse contribute equally and you receive something less than a 50 percent partnership interest, you essentially 'gave away' assets and its value could be recovered by your present creditors. Still, receiving an ownership interest that is proportionate to your contributed capital doesn't guarantee that a court won't still set aside the transfer once you have a present creditor. Courts have ruled that impairing a present creditor from collection is sufficient for a transfer to be fraudulent – even when the consideration (the limited partnership interests) equals the value of the assets transferred. Since the law on this point is not settled you cannot assume that transfers to a limited partnership are safe after you have a creditor. This again underscores why it's so important to lawsuit-proof yourself before you incur liabilities. To solve this potential problem we oftentimes use international entities that are considerably more protective than the limited partnership.

Categories: Asset Protection
The Presser Law Firm, P.A. - Asset Protection Attorney
Located at 6199 N. Federal Highway Boca Raton, FL 33487. View Map
Phone: (561) 953-1050