Question Advice on forming an LLC to protect assets...

[fast girl]

Husband and I have lost a tremendous amount of money over the past four years. Meaning me... I HAD all the money when we got married. We have made some very poor business choices, or should I say I made some very poor choices meaning that I went along with these business ventures and they were one disaster after another. My question is..... I still have an LLC that is a piece of commercial property and it has some equity (about 200,000.) in it and it and I am continuing to pay down the loan at a pretty good rate, I am the only member of the LLC, I also own several rental houses in my name only (not in an LLC) and there is some equity in those (about $80,000.) This is the last of anything I used to own before we got married. I want to hang on to it for retirement.
We have another commercial property that is not doing so well, this property is in an LLC. We are part owners 60%. We all signed for this loan, all the members of the LLC. I believe we have all signed personal guarentees.
My question is?????.... If I was to file a legal separation from my husband would this protect my properties? I think the property that we are only 60% owner is going to be in trouble in about six or seven months. I don't think we are going to be able to make these payments. By filing a legal separation would this help us from losing everything? Would this be any kind of benifit to me? Any suggestions? I'm just trying to plan ahead. Thanks for your replies.

[fast girl]

I forgot to mention my other question..... should I form another LLC for the rental houses? would that protect me? and my assets?

[HHM]

Forming another LLC might help, but if the creditors got really aggressive, they could probably pierce the corporate veil relying on your states fraudulent transfer statutes. So in the end, it probably would not help much.

As for legal separation, you will need to speak to an experienced family law attorney. I have seen couples do a legal separation and then the "problem" spouse files BK, but that scenario is a little different than you are describing. Your other BIG problem is that Wisconsin is a community property state. If these properties and debts were acquired while married, they will be presumed joint. If I recall, if you attempt a legal separation, I think you have to give direct notice to known creditors, thus, they will have a chance to come in and muck it up. Keep in mind, any equity growth that occurred while married would be considered a "joint" asset (because it benefits the married unit). For example, if building A had $100K of equity at the time of marriage, but during the marriage that building's equity grew to $200K, your spouse is presumed to rights to $50K of that equity.

[fast girl]

I don't care if my husband is entitled to my equity,(he's not a bad guy... just made some really poor business decisions & I went along with them) I'm just trying to figure out a way so the banks can't take anymore of my origional property, there is still a chance that there could be a bankcrupsy in the future because of this other property not doing well.
What if I file for a legal seperation/divorce now, got a bank to finance my cash flowing properties to me....... then when sh*t hits the fan..... I'll be prepared. Does that make any sense? I just want to know some wise options......

[goingout]

From my understanding an LLC only helps you if the company itself is able to obtain credit. If it's a new company and hasn't established credit then you'd likely have to sign a personal guantee on any loans, so you are responsible if the company is not able to pay.

[keepmine]

Plus, in a bk your ownershup interest in an LLC would be an asset subject to seizure by the trustee.
Just thinking out loud here but, your best option may be to liquidate the LLc and place the assets in things exempt from creditor seizure in bk like, IRA's and annuity products. Of course, I'm leaving unanswered the tax issues and the time frame to get around your states Fraudulent transfer act.
I'd try and find an asset protection attorney.

[morallyBR2]

If you are creating an LLC just to hide assets then that should work. Under an LLC, you would be an employee not an owner. I don't see why it would not fully protect you. You might burn in hell when you die but I will be there to keep you company so it's all good. I got jokes!

[HHM]

The problem is, forming an LLC when you have possible claims outstanding will run afoul of your states fraudulent transfer statute. My earlier point about community property, I think you missed the connection...if your husband is entitled to post marriage equity, so are your husband's creditors.

You need to speak with a Wills and Estate attorney.

[goingout]

So, what about assests she may have gained prior to the marriage? Does her DH have half ownership of those, making them available to his creditors to sieze?

[HHM]

Right now this whole discussion is hypothetical. Whether a creditor will go after an asset really depends on how aggressive that creditor is.

Generally speaking, in a community property state, pre-marriage assets are treated like this. Lets use the wife as an example...

1. The assets are still the individual property of the wife.
2. However, any growth in value earned AFTER the marriage is considered community property (and hence, 50/50).
3. Also, the rules vary depending on teh type of asset and whether the husband contributes to the value, etc. (i.e. think retirement accounts here).

Example:

Prior to getting married, wife owns an investment property worth $300,000. At the time of marriage, the property had $50,000 in equity. That equity at the time of marriage is solely the wife's. Fast forward 2 years into the marriage, and that investment property is now worth $400,000. Which means that during the marriage, the property appreciate $100,000. In a community property state, the husband (and hence the husbands creditors) has half of that $100,000.

The main problem the OP faces is the fraudulent transfer statutes of here states. If she purposely transfers assets without receiving fair market value when she knows there are possible claims, the creditors could conceivable pierce the corporate veil and get at those assets (or at least the husbands share of assets).

[bigreddog]

You need to get a GOOD attorney. A single member LLC does not protect assets if there is a lot of equity. It's common for the bankruptcy court to look at how an LLC is setup to make sure there isn't any "peppercorning". Funny term but it means 1 major member and a couple of other little small % members so as to protect the assets of the LLC. If you Google Single Member LLC you will find a couple of articles on the non protection of assets due to the fact that it is a single member and as such not offered the same protection if there were other members. It's just my opinion, but chapter 13 will save your residence even if you have equity, but rental property or commercial property with alot of equity is like a giant bullseye and banks are getting desperate. I am manager of a SMLLC. My wife is the sole member. We had to use every deduction, wild card, exemption and luck that our business loan was with our local friendly bank to keep the assets. But the questions from the trustee were tough and thorough. So I think I'm speaking from experience.