Lawsuit Protection Overview

Understanding Lawsuit Protection

PROBLEM: There are over 100 million lawsuits currently pending in the United States, and it is estimated that a lawsuit is filed every 30 seconds in America.

SOLUTION: Uniquely-drafted Family Limited Partnership (FLP)

The Family Limited Partnership was created in 1916. The FLP is a legal structure that protects all your professional and personal assets. It can also prevent lawsuits by making you so unattractive to a plaintiff attorney that they will never pursue a lawsuit against you. Specialized attorneys have retooled the FLP to include lawsuit protection principles. With almost 90 years of case law surrounding it, the FLP has emerged as a tremendously-powerful tool to hold real estate, equipment, bank accounts, and other assets to protect them against lawsuits. Once your assets are properly structured, you will have the financial peace of mind that comes from knowing you are protected from losing the assets you have worked a lifetime to secure.

FLPs are structured somewhat like a family business, with one or more general partner(s) controlling the partnership. The "limited partners" have no control whatsoever. They receive income, which is determined and distributed by the general partner(s). If a lawsuit is filed against an individual who owns assets in his/her name and the plaintiff wins, the judge would issue a "turnover order" in which non-exempt property, including the person's home, cars, stocks, bonds, bank accounts, etc., could be turned over to the plaintiff to satisfy the judgment. However, if a person's property is held within carefully-drafted asset protection FLPs, the law in all 50 states absolutely prohibits any of that property from being seized, sold, or turned over. In fact, the terms of carefully-drafted asset protection FLPs give plaintiffs only one remedy to collect on their judgments, the "charging order." This means that a plaintiff's only right is to receive distributions from the Family Limited Partnership.

Asset protection FLPs contain a clause that enables the general partner to distribute income on a non-pro rata basis, which means they can distribute income to themselves and other limited partners. They also have the ability to exclude distributions to the judgment creditor. As a result, the judgment creditor would receive no assets and no income; and because of the IRS Revenue Ruling 77-137, the judgment creditor who obtains a charging order against an FLP is required to pay taxes on "phantom income," which is the income of the FLP, even if the plaintiff does not receive the income. The result is that the plaintiff does not obtain any assets or income, but is liable for taxes on the income they will never receive. Therefore, the disclosure of properly-drafted FLPs to a prosecuting attorney is a great deterrent to the filing of a lawsuit. Because many of the lawsuits today are taken on a contingency basis, an asset search is one of the first things an attorney does before accepting a case. Placing your assets into properly-drafted legal entities removes the financial incentive of prosecuting attorneys.

Next Topic: "Become Invincible to Lawsuits"