The Family Liability Partnership can be a good strategy for asset protection when an individual’s worth is equal to or below $250,000. However, there may be ways through which a creditor or plaintiff may try to get access to the assets even through a Family Liability Partnership.
A creditor may use a Charging Order to reach your assets through any distributions from the partnership. In other words, if the creditor brings a Charging Order, the general partner may be required to hand over to the creditor any distributions from the partnership which would otherwise go to the debtor partner. The Charging Order gives the creditor access to distributions from the partnership.
A creditor with a Charging Order is likely to come back to the table to negotiate a settlement, because he may not want to wait long for distributions. However, if your creditor does not mind waiting for a long period of time, he will eventually be the recipient of any distributions from the partnership. There’s also another disadvantage, in that during this period of time, you will be deprived of enjoying your assets.
Obviously, the higher the value of the assets, the less desirable an FLP. In fact, we would not advise an FLP for individuals having a net worth of above $500,000. The reason for that is that the higher the value, the more incentive plaintiff’s attorneys have to wait it out and eventually reach your assets.
Besides, creditors might even break open the Family Limited Partnership. That can and does happen, and much more often than you know. That’s the reason why we don’t recommend an FLP as a foolproof, reliable and sole method of asset protection.
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