THE CASTLE KEEP ASSET PROTECTION STRATEGIES GARRETT SUTTON
A client had sued Sammy over some very careless work a subcontractor had performed . The plumber had gone out of business and left the state , leaving Sammy holding the bag . A judgment was rendered whereby Sammy ’ s sole proprietorship was held liable for the significant damages . Since the sole proprietorship offered no asset protection whatsoever , all of Sammy ’ s personal assets were fair game for collection . And because Sammy hadn ’ t used a protective entity to hold title to his duplex , the property was completely exposed to the claims of the judgment creditor .
As a result , Sammy lost all of his sole proprietorship assets , his trucks and equipment , as well as the duplex . All lost to satisfy the claims for damages he did not cause . It was a bitter experience Sammy vowed would never happen again .
Sammy immediately started operating his construction business for flipping properties through an LLC taxed as an S corporation . He began acquiring hold properties with a vengeance , putting them all into one LLC . Before long , he had three 4plexes and one triplex in his one LLC .
Then the second lawsuit was filed .
A tenant had fallen at the triplex . Sammy ’ s insurance company used a loophole to avoid paying the claim . As the chart below indicates , the tenant prevailed in a lawsuit brought against the LLC that owned the triplex .
The good news was that Sammy ’ s construction business and personal assets were not exposed to the claim . The bad news was that the judgment allowed the tenant to proceed against all of the assets in Sammy ’ s Real Estate LLC . Two of the 4plexes were owned free and clear . The tenant ’ s attorney was able to easily attach the 4plexes and sell them to satisfy the claim .
It was after this experience that Sammy came to appreciate that one did not want to own too many properties in one LLC or LP . By holding four properties in one LLC , a tenant with a claim involving one of the properties can reach the equity in all four properties .
Sammy decided that in the future , only one property would be held in each LLC . Putting too many properties in one LLC created an attractive target for the professional litigants of the world .