Will quit claiming property to spouse protect me?

Question

Will quit claiming our personal home's deed to my wife protect us from a lawsuit pertaining to my business or my rental properties?  She is far less exposed on a liability level.

Bill Gulley · Answer

The very best way to avoid liability is to act prudently, then the next best defense is having insurance, if you address these two areas you can hold a hundred properties in you personal name and never worry about your personal assets.

While a business entity helps, it should be used for business and tax purposes first, IMO, then if it provides more protection from liability, that's fine....as Jeff mentioned, it can.  :)

Ned Carey · Answer

Probably a terrible idea. In most states the way a husband and wife title the property, someone cannot come after it if they are only coming after one of the spouses.  Check with your attorney.

Rob K. · Answer

Brian W. Check out this thread I started a while back:

http://www.biggerpockets.com/forums/52/topics/78884-has-a-tenant-or-former-tenant-ever-sued-you

I had heard all of the horror stories about someone being sued and "losing everything". I think it's all an urban legend. I talked to a lawyer about this and he said the biggest lawsuit he ever heard of involved a death at a large apartment complex and the award was one million. He said to carry at least a million in liability and sleep well.

On a side note - I had never been sued before until recently. I had a tenant that was all kinds of crazy. She wants her full security deposit back instead of the portion I returned to her. We're only talking about $300-400, but she wants it and I don't want to pay it. We are going to small claims court next month where I get to pretend to be a lawyer. I have fun with it.

Bill Gulley · Answer

Has a suit been filed against you? Disposing of assets in contemplation of any judgment can be brought back and/or get you hammered, IMO. :)

Dave Toelkes · Answer

(IMHO) If protection from a lawsuit is your sole reason for transferring your property to an LLC, then you are in violation of the Uniform Fraudulent Transfers Act.

Consult your attorney for specific guidance.

I generally agree that an LLC is not necessary for rental property that you manage properly and insure adequately.  If you do choose to use an LLC, I would not establish an LLC for each property, but rather, limit the amount of equity put into each LLC to maybe $250K.  You might have several properties in one LLC    before the equity exceeded $250K.  When that happens, establish another LLC for your next properties.

The amount of umbrella insurance is dictated by your net worth.  If you have a net worth of $5 million, then make sure that your liability insurance on each individual property plus the amount of umbrella insurance is at least $5 million.  If your net worth is less than $1 million, then a $1 million liability policy on each property should be sufficient with no umbrella required.

Just my $0.02

Brian W. · Answer

I already read through that entire thread a couple of weeks ago.  There's a lot of great information in there.

I agree, I think the "lost everything" situation is very rare.

With that said, to everyone here, is having a one or two million dollar umbrella policy enough that I can rest easy or should I have a sub-LLC for each property I own?

P.S.  I don't own any right now and my goal as of right now is to have about 3 - 4 that I will personally manage and, hopefully, personally own to avoid the added costs and effort of holding each property in its own sub-LLC.  I currently own a business that is an LLC so I'm very familiar with what goes into establishing and maintaining one.

Brian W. · Answer

Nope.  I still in search of my first property.  I just wanted to go into this with the best possible liability structure.

Jeff S. · Answer

Are your business and rentals held in a limited liability entity?  That would solve most issues.  I'm no lawyer, but LLC has been touted as best way to keep personal assets from business liability.

Mehran K. · Answer

Yeah Brian, I'm not sure of the legalities of the strategy itself. But one thing I read is that unless you do this WAY in advance of any lawsuit, there could be some serious repercussions. So do all of your asset protection strategies when the waters are calm.

Will quit claiming property to spouse protect me?

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