|Protecting the assets of unmarried
LLC for investment property,
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.