The economy is in the toilet, or at least it looks that way. I’m an attorney, not an economist, but the economy is top on my radar screen. This is a time to divide and conquer, if it is possible to survive. I have talked to some of the “big time” economists. In fact, I hosted a dinner last night for one of the world renowned consultants to governments and banks. We discussed the economy on a pretty high scale for a couple of hours. The take home message is economy in the toilet. We have a mess and NOBODY KNOWS how to fix it or what will happen. (I’m sure that’s news to you. Anyone with half a brain has figured that out already.)
How can the law help you survive the economy? I often talk about the analogy with legal pockets. If you have all your money in your purse or wallet, and you get picked, your money is all gone. If you have taken some of your money out of your wallet and put it in your front pocket, then if you get your wallet picked, you don’t lose everything. You can create legal pockets, and with the economy in the toilet, it is more important than ever for you to start creating the pockets.
I would use an LLC for each pocket. The living revocable trust, land trust, and other “revocable” trusts can’t be used as a pocket, because they don’t give you any asset protection. However, the LLCs and limited partnerships will give you protection, because your creditors have to get a charging order to come after your assets. For a limited time, I will give you a report that I wrote on the LLCs and charging orders. It has sold hundreds of copies at $29.99. Act now! Sign-up at the top of this page.
If you divide your assets up into the pockets by creating one or more LLCs and placing some assets into the LLC(s), then everything may not be at risk all at the same time. Because the economy is so bad, and nobody knows what will happen, it is hard to plan. With a rental unit in one LLC and another in another LLC, if one has to be “given up” because the economy in that part of town is gone, then it may be possible to protect the other one. If you owned the “other one” in your name, your living revocable trust, or a land trust, there wouldn’t be any protection. When the one unit had to be “given up” the mortgage company could easily come get the other unit also. If the other unit is in a separate LLC, the mortgage company can “come and get it,” but they have to use the charging order to “come and get it.”
The charging order only gives the creditor (mortgage company) an economic interest in the LLC. It doesn’t give the creditor ownership of the asset. This becomes a big deal, because you have provided a lot of “negotiation” room for yourself at that point.
With different assets in different LLCs, you can actually do different planning. You can “fortify” one LLC against the possibility of hyper inflation. Another LLC you can “fortify” against the possibility of a depression. With assets in different legal pockets you will have flexibility you otherwise wouldn’t have. Face the facts; you are going to have to be as flexible as possible to survive these bad times.