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Asset Protection beyond the LLC -- Any experts?

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justonemore

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I've read 5 books on Asset Protection over the last few weeks and my head is spinning.
I'm wondering if anyone here has figured out good strategies to keep your money safe when venturing out onto the internet with an online business.

The main thing that concerns me is it appears that single member LLCs(where you're the only owner) offer zero protection in almost all states. This means if you're single(like me) and/or don't have any business partners, if someone sues your LLC, they can steal everything you own in your personal life(minus your 401k). Your house, your cars, your savings could all be taken by someone upset at you...

I have to imagine most people don't know this OR most people have figured out a trick I haven't found yet?


I found some strategies that could maybe work, but would like others thoughts:

1 - Setup an LLC in one of the few states that does offer protection for single member LLCs and do business directly from that. The problem with this is if your home states determines that you're 'doing business' in your home state and you didn't register as a foreign entity, then all LLC protections will be ignored. Also if you do register in your home state and you get sued, the judge gets to pick which states laws to use so your home states slack laws would be used. Thus I'm not sure this would work?

2 - Use an Limited Partnership which has a lot more case law and almost all states respect it. An LP needs to have a 'general partner' which has 100% liability, so make the GP an LLC in another state that has better LLC protections. I have no idea if this would work or not. It seems like a judge could just ask 'who's the manager of the LLC who's serving as the LP'. When you answer 'me', then I have to image he's going to just rip everything up.

3 - Have a trust own the LLC. To me it seems that if it's a revocable trust, a judge could just tell the manager of the LLC(you) to kill the trust and pay the attacker.
If it's an irrevocable trust, you're really making things hard on yourself if you want to sell your home or sell your car, etc.

4 - Setup 2 LLCs. First is in a state that protects single member LLCs and have that LLC own your second LLC that's based in your local state. Idea being if you get sued in your home state, it would issue a judgment against your other LLC, and not you. No idea if this would work?

5 - Have an LLC or Trust or Charity be a second member of your LLC so you no longer have a single member LLC. Multimember LLCs get protection in most states. No idea if this would work if you clearly own both?


Any thoughts, experience, advise, pointers in the right direction?

Note: Everything above is just my current understanding. I'm no expert on this.
 

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Tanishatheangel

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I've read 5 books on Asset Protection over the last few weeks and my head is spinning.
I'm wondering if anyone here has figured out good strategies to keep your money safe when venturing out onto the internet with an online business.

The main thing that concerns me is it appears that single member LLCs(where you're the only owner) offer zero protection in almost all states. This means if you're single(like me) and/or don't have any business partners, if someone sues your LLC, they can steal everything you own in your personal life(minus your 401k). Your house, your cars, your savings could all be taken by someone upset at you...

I have to imagine most people don't know this OR most people have figured out a trick I haven't found yet?


I found some strategies that could maybe work, but would like others thoughts:

1 - Setup an LLC in one of the few states that does offer protection for single member LLCs and do business directly from that. The problem with this is if your home states determines that you're 'doing business' in your home state and you didn't register as a foreign entity, then all LLC protections will be ignored. Also if you do register in your home state and you get sued, the judge gets to pick which states laws to use so your home states slack laws would be used. Thus I'm not sure this would work?

2 - Use an Limited Partnership which has a lot more case law and almost all states respect it. An LP needs to have a 'general partner' which has 100% liability, so make the GP an LLC in another state that has better LLC protections. I have no idea if this would work or not. It seems like a judge could just ask 'who's the manager of the LLC who's serving as the LP'. When you answer 'me', then I have to image he's going to just rip everything up.

3 - Have a trust own the LLC. To me it seems that if it's a revocable trust, a judge could just tell the manager of the LLC(you) to kill the trust and pay the attacker.
If it's an irrevocable trust, you're really making things hard on yourself if you want to sell your home or sell your car, etc.

4 - Setup 2 LLCs. First is in a state that protects single member LLCs and have that LLC own your second LLC that's based in your local state. Idea being if you get sued in your home state, it would issue a judgment against your other LLC, and not you. No idea if this would work?

5 - Have an LLC or Trust or Charity be a second member of your LLC so you no longer have a single member LLC. Multimember LLCs get protection in most states. No idea if this would work if you clearly own both?


Any thoughts, experience, advise, pointers in the right direction?

Note: Everything above is just my current understanding. I'm no expert on this.

hmmm this is something that would be very useful to know as our networths increase over time
 

SteveO

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Your best asset protection against a lawsuit is good insurance.

What is your business? Do you have employees? Are you up and running full speed and profitable?
 

SteveO

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Over the years I have had an LLC for each business. In my case, the businesses were defined as apartment buildings. I also had a management company that took care of each business. This way, my operations were separated from the assets themselves.

There were a number of lawsuits though. A battery exploded on a customer, trip and fall down steps, broken leg from stepping into a hole, etc. Each time the lawsuit was filed against both companies. Both were named as insured on my policy. In all cases the insurance company dealt with the issue.
 

justonemore

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Your best asset protection against a lawsuit is good insurance.

What is your business? Do you have employees? Are you up and running full speed and profitable?

Hi SteveO, thanks for replying(thanks to the people above as well).

That's a good point about insurance. I guess when I was initially thinking about starting an online business I was thinking smaller than that, but I could just get insurance for them.

I currently don't have any real businesses, no employees, but my main concern isn't so much business assets being stolen, it's the veil of the business being ignored and my personal assets being taken.
I have a lot of savings personally which I don't want to lose.

I do also currently have a few place of exposure. I have a rental property that's paid off and is actively rented and a website that gets 1,000 or so visitors a day.

My insurance co does insure my rental and I have an umbrella on it, but it's not in an LLC or anything. My insurance agent said not to put it in an LLC, but I don't know, everyone says something different.

My website is currently just under my name which probably is not smart... One thing that concerns me there is even sites that seem 110% legit can open you up. I saw in a post here I think about someone who setup a business to buy used CDs online. He then turned them around on Amazon for a small profit. Someone sold him a fake CD, he didn't know it was fake, sold it on Amazon and the record co sued and lost his life savings. Things like that keep me up at night....

I also have plans to start some companies.
One company would make security appliances for corporations. Think big hardware firewalls, but kind of different.
I also want to start a virtual IT security service.
I also want to buy more rentals and get my savings making more that 1% interest.


Over the years I have had an LLC for each business. In my case, the businesses were defined as apartment buildings. I also had a management company that took care of each business. This way, my operations were separated from the assets themselves.

That's smart. I read that it's a good idea to have a management company LLC that rents to the renters and then hold the properties in separate LLCs and have the property LLCs simply lease the properties to the management LLC. If the management LLC get sued, there's no assets to steal.
The question I have in this scenario though is wouldn't a judge simply say the LLC isn't a 'real LLC' with multiple members and just ignore it?

Are your LLCs owned solely by you, or do you have a multimember LLC?
Did you make all of your LLCs in your home state?


There were a number of lawsuits though. A battery exploded on a customer, trip and fall down steps, broken leg from stepping into a hole, etc. Each time the lawsuit was filed against both companies. Both were named as insured on my policy. In all cases the insurance company dealt with the issue.

That's great real world insight, thanks! Hearing stories likes that makes it easier to understand how things work in real life.


Wyoming provides single member LLC protection.

Thanks. Yeah I was reading about that. Wyoming and Nevada I think.
Wyoming seems really good.
The trick, I think, is making sure you can only be sued in their state.
Say you live in Virginia and start a Wyoming LLC.
Someone suing your company could sue you using either Virgina law or Wyoming law from my understanding. So they would pick the easier law to sue under.
Where it might work is if you make an LLC in Virginia and make the owner of that LLC the Wyoming LLC. Then the lawsuit might start in Va, Va would say single member LLCs aren't valid and the owner is liable. Then the ower being the Wyoming LLC would get hit then hopefully the buck would stop there? You would lose the assets of the Wyoming LLC, but not your personal savings, maybe? Not sure....
 
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SteveO

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The question I have in this scenario though is wouldn't a judge simply say the LLC isn't a 'real LLC' with multiple members and just ignore it?

Are your LLCs owned solely by you, or do you have a multimember LLC?
Did you make all of your LLCs in your home state?
It was a real LLC. I had it for 13 years. My accountant talked me out of it recently as I was paying $800 a year for an extra business tax return.

I have had multi-member LLC's in the past. All the current LLC's are owned by my wife and I. They are all Arizona LLC's which is where the assets are.

The cost of an LLC with business income would be an extra tax return and whatever it costs to start and maintain it. To my knowledge, I have never directly benefited from asset protection from an LLC. But I still maintain a few and have assets in them.
 

justonemore

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It was a real LLC. I had it for 13 years. My accountant talked me out of it recently as I was paying $800 a year for an extra business tax return.

Gotcha. My insurance guy said it also would cost more on his side to add insurance to an LLC and a corporate umbrella for it. I think he said it would cost around $300-400/yr more. Also one of the lawyers I was working with wanted $250/yr to be the registered agent. Add in the extra tax prep like you said and now you're really cutting into your profit.
Maybe worth it if it made things bullet proof, but it sounds like it doesn't.


I have had multi-member LLC's in the past. All the current LLC's are owned by my wife and I. They are all Arizona LLC's which is where the assets are.

One thing to note, I have read that there have been cases where a Wife/Husband LLC is treated as a single member LLC and asset protections are ignored. Not sure how common that is, my guess is it's rare, but I don't know.

Here's something on it:

"The spouse as a second member can work, but it has the most dangers. The benefit to having a spouse as the second member is that you aren’t really giving away any of the company. At least you are keeping the ownership “in the family.” The problem is that the courts may consider a husband and wife as one unit and disallow the charging order protection."
Spouse as Member in an LLC - How to Form an LLC or Forming an LLC
 

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What if you do not create any more corporations, but add a parent or an adult child, making it not a single-member LLC. Would this protect your personal assets in most states?
 

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Well, I have some experience with this and my wife is an attorney that has familiarity with asset protection.
I don't think @Kung Fu Steve was disparaging you @SteveO.

He's only recommending me since he knows this is my field of expertise for many years.

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SteveO

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I don't think @Kung Fu Steve was disparaging you @SteveO.

He's only recommending me since he knows this is my field of expertise for many years.

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I meant to make a joke here but failed to put the joke part in. :) For some reason I was having trouble putting the "girlfriend" part into the response.
 

justonemore

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What if you do not create any more corporations, but add a parent or an adult child, making it not a single-member LLC. Would this protect your personal assets in most states?

I think so. That might just be the easiest way to do it. I've ready that 1% probably won't cut it, that you probably need to give away 5% business ownership. And not just on paper, you need to record meetings with them and actually give them 5% of the profit every year. But even still, that might be the smartest way to do this. I might see if one of my friends will do it. I'm wondering what would happen in a lawsuit. Would your friend be forced to hire a lawyer and whatnot?


@GlobalWealth is the only person to talk to.

Thanks. I setup an appointment with GlobalWealth on Monday.
 

GlobalWealth

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I meant to make a joke here but failed to put the joke part in. :) For some reason I was having trouble putting the "girlfriend" part into the response.
I'm sure your wife would love to hear about your girlfriend jokes......;)

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GlobalWealth

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@SteveO I'm just trying to get out of my latest Global Wealth bill
If you don't pay soon I'm firing you.

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