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Protecting the assets of unmarried couples
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LLC for investment property, businesses
Unmarried couples may want to consider putting ownership of income property into a limited liability company. An LLC offers protection from liability. If one party gets personally sued, the property cannot be taken away. Rosenthal reports that in a dispute, the only thing a creditor could do is go after the interest of received distributions from the LLC if, and only if, the LLC declares a dividend.

In addition, each owner will receive his or her usual share of tax breaks, such as deductions for mortgage interest and real estate taxes, as well as capital gains exclusions. The LLC, as the owner of the property, receives the tax exemptions, but passes it through to its owners.

When couples come to Pekala and tell her that they want to go into business together, she asks them, "What's your idea? Let's talk about it." During this conversation, she often notices that one party starts talking, and the other doesn't agree with what is being said. "It's human nature that everybody has their own opinion, and everybody has their own assumptions about the best way to do something," she says.

"Whether you have a corporation, partnership or an LLC, there should be a written agreement. In the event of a corporation, it's called a shareholder agreement. Participants in a partnership may opt for a partnership agreement, although it is not legally required. There is a disadvantage to a partnership, namely, the risk of both parties losing their home and/or savings accounts if they are sued. Owners of a corporation or LLC do not carry this risk."

Pekala is also a fan of the LLC, which is the combination of a partnership and a corporation, though, she says, the S corporation is "very frequently used as the legal structure for unmarried couples who have a business." Both the S corporation and the LLC provide liability protection as well as tax advantages, she says. For both business structures, owners will avoid double taxation, which involves paying tax on corporate profits, then paying taxes on them again when the profits are distributed to the owners.

While making property-purchase or business-structure decisions can be complicated for everyone involved, laws are in place to protect married couples in the event of a split. Since unwed couples are more vulnerable, it behooves them to take measures to protect their own interests before getting entangled in financial or business ventures.

Bankrate.com's corrections policy -- Posted: June 5, 2006
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