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HOW NOT TO PROTECT ASSETS

CORPORATION AS A GENERAL PARTNER OF AN FLP

The foremost tool for domestic asset protection is a Family Limited Partnership. (See also Asset Protection in the New Millennium and Efficacy of Family Limited Partnerships: A Case Study.) Some asset protection "experts" recommend that a corporation should be formed to act as the general partner of a Family Limited Partnership. You would own the shares of that corporation. The theory is that the corporation as general partner allows for an additional "layer" of protection between a creditor and the assets contained within the partnership.

This is bad advice. Stock, including your stock in the general partner corporation, is an attachable asset. A judgment creditor can seize your shares of the general partner corporation and take control of that corporation. The creditor effectively becomes the general partner of the partnership and takes control of all the assets in the partnership. This strategy is a classic example of "a little knowledge is a dangerous thing."