How can I lawsuit-proof our stock ownership in our C corporation?
The family business is often the family's major asset, and frequently,
it is a C corporation. But even if it is a public corporation, you must
protectively title these corporate shares. If these shares are owned by
you individually, they can be seized by your creditors. You should instead
title these shares to a family limited partnership (FLP)
. For example, a husband and wife (or either spouse) as the general partners
would control the partnership. In turn, the LP owns and controls the stock
interest in the corporation. Or you may title the corporate shares to
an irrevocable trust. Your children, for instance, can be the beneficiaries.
The husband and wife as co-trustees of the trust can then manage the trust
that controls the corporation. In either instance, the spouses would indirectly
control the corporate assets without directly owning the corporate shares.
Another option is to title the shares to an international trust. It well-protects
corporate shares. Or you may title your shares with your spouse as tenants-by-the-entirety
if your state protects TBE shares against one spouse's creditors.
Obviously, you can also pledge or encumber your shares to a friendly creditor
as you can any other asset.
Many people do not think about protecting their stock ownership in their
own business – and frequently this is both their major asset and
a C corporation. If their shareholder interest in their own business is
exposed, it's poor business and personal planning.