Texas is a community property state. Community property refers to property which spouses acquire during the period of their marriage. You need to protect your property in case you and your spouse divorce. Texas law does not require a 50-50 division of property; rather, the courts approach the division of your property according to what the court considers to be “just and right.” The purpose of a premarital or prenuptial agreement is to prevent the creation of community property so that the court does not take away what belongs to you. The prenuptial agreement permits parties to enter into a contract in which they determine which property remains separate and which property becomes community. A court cannot give your separate property to your spouse. You can use a premarital agreement to address any property issue that might arise during divorce except for child support.
The Uniform Premarital Act (Texas Family Code Chapter 4) mandates that prenuptial agreement be written. Each party must sign the agreement, and the parties can enforce the contract without consideration. The agreements becomes effective upon marriage, and the parties have the right to amend the agreement at any time.
Premarital agreements are not enforceable if:
Spouses may separate their community property after marriage. The agreement is called a partition and exchange agreement or post-nuptial agreement. The agreement can separate current community property or property which the parties may acquire. The parties must sign the agreement voluntarily, and the agreement must not be unconscionable. As with a prenuptial agreement, the agreement parties must provide reasonable and fair disclosure of the properties or voluntarily waive, in writing, the right to disclosure. The waiving party must not have had adequate knowledge of the property or the financial obligations of the other party. Pre-existing creditors are not subject to these agreements. You can also convert separate property to community property.
Foreign entities are an alternative to foreign trusts as a way to protect your liquid assets. Foreign trusts often allow you unbreakable protection. However, foreign trusts can be expensive. You also want to avoid owning assets in your own name – meaning you do not want stock in your own name or an overseas bank account in your own name. Creditors can reach assets titled in your name. A foreign LLC may be a better solution because all LLCs offer protection from charging orders. The benefit of a foreign LLC is often that a creditor would need to go to the foreign jurisdiction to commence litigation against the assets. Your creditors may not want to incur the cost and difficulty of litigating in another country.
Limited liability companies and limited partnerships are asset protection tools. Creditors can seize assets which you own, but creditors cannot seize assets which you do not own. You do not own an asset if a legal entity owns the asset regardless of your ownership percentage in the legal entity.
LLCs and LPs are better than corporations because LLCs and LPs offer protection from charging orders. A charging order is a judge’s order allowing a creditor to intercept payments, distributions, or proceeds. Corporate stock is not nonexempt property. Creditors can use a charging order to seize corporate stock which they can then sell at an auction and, depending on your membership interest, force a liquidation of the corporation to reach the underlying assets. A charging order does not allow a creditor to take over your membership interest in an LLC or LP. The creditor can only seize distributions. Fortunately, salary for personal services is not the same as a distribution and is exempt from seizure.
As manager of your LLC, you will have full control over your assets while benefitting from asset protection.
You can sell your residence to protect its equity; however, you may wish to continue living in the property. We can assist you with the sale and leaseback of your residence to a friendly third-party using a deferred installment note. The process involves selling your residence to a friendly party and retaining a promissory note. You then lease the property from your friendly third party buyer and continue to remain in the house. You now own only a promissory note rather than the underlying property. This transaction works only as long as the sale and lease back are legitimate and at arm’s length. As with the sale and rental of any property, income taxes consequences must be taken in to consideration.
Your home is often the most important asset to protect from creditors. Your house represents both financial and emotional investment. A personal residence trust can protect your home. These trusts are irrevocable in the sense that no one else (creditor or plaintiff) can undo the trust except for you. Once you transfer the deed of your home to the trust, the trust owns the home. You are no longer the actual owner. The trust is the owner of your home. Because the home is no longer your personal asset, creditors cannot access it. You will have to appoint a third party to be the trustee. You cannot be your own trustee. We can tailor the trust to your specific needs.
© 2019 Viles Law Firm. All rights reserved
Designed and Developed by: oniue.com