Asset Protection in Pennsylvania

15 Replies

In the short time that I have been on here, I have followed many discussions that touch upon asset protection. While doing some research on the topic, I learned that Pennsylvania does not have a homestead excemption. So before I push forward with REI, I want to learn the best methods for asset protection (especially primary residence) in Pennsylvania. I own my home free & clear and I don't want my hard earned equity getting lost in a lawsuit.

I am curious how other PA BP members deal with asset protection? 

I don't get the question. Buy your investment properties in an LLC and if you get sued for something in your business it will be the LLC that gets sued and liability will be limited to that entity. That is why they are called limited liability companies.

@Jerry Kisasonak  

This issue has been brought up in several threads lately and many state that the veil of the LLC can be pierced. Although it is my intention to start investing in buy and hold properties, my interest in this topic is not limited to REI. I learned during my research today that Pennsylvania does not have a homestead exemption, so my personal residence is at risk if I get sued.

I requested a rate quote and information regarding an Umbrella policy, but the legal sites I stumbled upon today suggest there are several strategies for asset protection.  Was just curious what other PA residents were doing, since most states have some form of homestead exemption.

Interesting tidbit I learned, that is also be state specific. If you have a joint tenancy deed, in MD and I believe most states, a lawsuit cannot take the home, or even an interest in it, in a lawsuit against one owner. In other words, if your wife is on the deed, but not involved in your investments, you might be covered. I did not check that while I lived in PA, I learned about it when a competitor sued my ex-wife's company.

wait I actually stumbles upon this thread looking up the same thing. I just that Pennsylvania is a state that protects your primary residence. Are you sure. ? I would like to know this information also as I won my house free and clear

Account Closed 

There is a lot of discussion on these threads about piercing the veil of the LLC. Yes, this is possible. But this is really an academic discussion. In practice, it is very difficult to pierce the corporate veil. Courts don't like to do it. The plaintiff has a high burden to show that the defendant did not respect corporate formalities. Does it ever happen that a court pierces the corporate veil? Of course. Does it happen often? Not at all.

I don't say this just as a guy with an opinion.  I say it as someone who litigated cases for 12 years.  I've been on both sides of claims that the corporate veil should be pierced.  I never saw a successful one.

@Account Closed   You want to protect all your personal property along with your primary residence.  Smart move.

The two things to do are 1) create a legal entity to own your investment property (and follow the rules).  2) Obtain insurance. 

Yes, the corporate veil of Corporations and LLCs can be shredded.  That happens when the owners of those entities are NOT following the proper laws and rules. 

If you create an LLC and use it as your personal piggy bank (i.e. you pay your personal expenses from it). Or you knowingly and intended to commit fraud. (LLCs don't protect you from crime). You're going to lose your LLC protection in court. See the link below for more information.

Every situation is different and you should consult a attorney.  They can help you set up your legal protections.  

Nolo: Personal Liability & Pierciing Corporate Veil

@Charles Press Is exactly right. If you act like there is no LLC in practice, then the courts will ignore the existence of the LLC. So, if you plan to abuse the LLC, there is no point in creating one.

However, if you make a good faith effort to respect the corporate form and really treat it as a separate entity, this in most cases will be enough for a court to accept that liability should be limited.  

Also, please, please, PLEASE don't listen to those people who tell you to go form an LLC because you can then run all your personal expenses through it and pay for your life out of pre-tax money. Those are the people who wind up not only getting their LLC veils pierced, but wind up in trouble with the IRS as well.

@Jonathan Twombly  

Thanks for the insight, from your experience as a commercial litigator.  Many people here seem to think that LLCs are dead on arrival vehicles for legal protection in a lawsuit.  When 99.97% of the time they are life saver.

As for lawsuits, their a fact of life.  Believe you pointed out, if you haven't been suited yet, you will be at some point.  It only takes a matter of time before somebody is going to file suit on you being in business.  The more successful you become, the bigger target you are.  A lot of times there is no merit and you'll likely win on summary judgement.  Still a paoin though. 

 


    

@Walt Payne    @Jason C.  

Here is a reference about the lack of the Homestead Exemption in PA.  Also in the link it references "tenancy by the entireties" which I think is what you were referring to Walt.  I am curious if that needs to be done at time of purchase or if we can change it now.  That would protect our home if either of us were sued, but if we both were sued it wouldn't protect us. 

Asset Protection

Yes, you need both. Insurance and an LLC serve different purposes. One protects you from some out of pocket costs. The other limits the assets that are at risk. You absolutely need both.

Another thing that is left out of these discussions is that if you don't have insurance, courts may view this as evidence that the LLC is undercapitalized and not being used properly. If you have insurance, and a injured person can collect some compensation, the courts will be even more likely to respect the LLC protection.

Originally posted by @Jonathan Twombly:

@Charles Press Is exactly right. If you act like there is no LLC in practice, then the courts will ignore the existence of the LLC. So, if you plan to abuse the LLC, there is no point in creating one.

However, if you make a good faith effort to respect the corporate form and really treat it as a separate entity, this in most cases will be enough for a court to accept that liability should be limited.  

Also, please, please, PLEASE don't listen to those people who tell you to go form an LLC because you can then run all your personal expenses through it and pay for your life out of pre-tax money. Those are the people who wind up not only getting their LLC veils pierced, but wind up in trouble with the IRS as well.

All of what you said is consistent with what I have been told. The latter part is what makes treating an LLC as the primary asset protection a serious problem. Too many REI are part time, and in way too many ways treat it more as a hobby than a business. And therein lies the issue. That is especially why I say it is imperative that they not listen to those who tell them to spend $100 to do it online. Yes, it is cheap. Yes it is easy. But spend that $1000 now to get an education about what is necessary in your state. Then do it online for any additiona LLCs you need.

@Charles Press  @Jonathan Twombly  @Walt Payne  

I missed some of the posts while I was typing up my response about the tenancy by the entireties.  When I checked back last night I scrolled right by them. 

Thank you all for sharing your insight.  I definitely have a much better understanding thanks to your responses.