A rental property is one type of asset that individuals may acquire as part of their asset portfolio. While Florida law protects your homestead property, no matter its value, this protection does not extend to rental properties. Therefore, you need to take proactive steps to shelter your rental properties from the potential reach of creditors. You can rely on a Florida asset protection lawyer at Kramer Green to work diligently to protect your assets, including rental properties, from creditors to the greatest extent possible.
Sheltering Rental Properties from Creditors
One of the easiest ways to protect your rental properties from creditors is to title the properties in the name of a business entity. The limited liability company or LLC is a relatively simple business entity to form and maintain. Once you have formed an LLC, you can transfer ownership of any rental properties that you already own to the LLC. Alternatively, you can directly purchase rental properties in the name of the LLC.
You can form one LLC or multiple LLCs, depending on your property holdings and business interests. Any rental properties held in an LLC are not generally subject to the reach of your creditors. For instance, suppose a person sues you after you are involved in a motor vehicle accident, or a credit card company sues you over an unpaid debt. If the court awards a judgment against you, the creditor will attempt to collect on that judgment at some point, perhaps by executing against your property. However, if an LLC owns your rental properties, that creditor cannot execute on those rental properties to pay the judgment you owe.
Liability for Incidents that Occur on Rental Properties
Property owners often become subject to lawsuits for incidents on their property. For instance, individuals may sue if they suffer injuries while on the property due to slip and fall accidents, dog bites, or attacks by other persons. Having adequate insurance coverage is your first defense in these types of lawsuits. In many cases, if you have generous insurance coverage, your insurance policy will cover any damages awarded against a rental property owner.
If you establish an LLC as the property owner, you create further protection for your assets in case of a lawsuit. If the judgment exceeds your insurance policy limits, creditors may look to your assets to satisfy the balance of the judgment. However, if an LLC owns the rental property, the creditor is limited to satisfying the judgment from assets owned by the LLC. As a result, the creditor cannot reach your assets to satisfy the judgment. However, the creditor still could force the sale of the entire LLC interest to satisfy the judgment, at least in the case of a single-member LLC.
Multi-Member LLCs and Limited Partnerships
Forming a multi-member LLC or limited partnership can provide superior protection to a rental property in the case of a lawsuit concerning an incident on the property. Under Florida Statutes 605.0503, a creditor’s only remedy to collect a debtor’s interest in an LLC with multiple members or a limited partnership is a charging order. This exclusive remedy is a court-ordered lien on any distributions the member receives from the LLC. Therefore, the creditor cannot reach the underlying assets that the LLC or LLP owns, so the rental property and other assets are protected from execution to satisfy the judgment. The key to limiting a creditor to a charging order as an exclusive remedy is creating an LLC with more than one member or partner; a single-member LLC will not enjoy the same protections.
Allow Us to Help You Protect Your Assets Today
An asset protection attorney at Kramer, Green, Zuckerman, Greene & Buchsbaum, P.A. is ready to assist you in protecting your personal or business assets from the reach of creditors. We know how hard you have worked to build your personal and business wealth and want to help you preserve it.
As a result, our objective is to take any actions necessary to protect your assets for your and your family’s benefit. Contact our office today at (954) 966-2112 or reach out to us online to schedule a time to discuss your legal issues with our attorneys.