Seperating business and personal assets

[Goblue10]

My spouse has entered a general partnership with several other family members. I am aware a General Partnership is one of the worst mechanisms for seperating business and personal assets for liability/risk management purposes.

What are your thoughts on how best to achieve this "seperation" goal? Thank you!

[wellmoneyed]

My spouse has entered a general partnership with several other family members. I am aware a General Partnership is one of the worst mechanisms for seperating business and personal assets for liability/risk management purposes.

This is my understanding of things I might be wrong etc. etc. There are 2 main types of business entities (again not a lawyer and this is fictional writing) from a liability stand point:

Sole Proprietor/Partnership - The individual assets are always at risk
Corporation/LLC - The individual assets are sometimes at risk

As with all liability management "layers" is normally the strategy. There is generally no single bullet fix. Here are some ideas for how to "protect" your assets from a partnership liability. Generally, you can not transfer money after you know about a liability.

401k - Generally 100% protected
IRA - Generally some level of protection (I believe 1Million in CA currently)
529 - Depends on the state
Transmutation agreement - separate half your assets from your spouse - this only protects the half the non-partner owns.
Family partnership or other business venture that can hold money - can reduce ease of access to money in the case of a judgement
Insurance - have the partnership have a healthy amount of insurance for the types of liability you are worried about

Hope the above is helpful.

Why did they pick a partnership as the structure as opposed to a LLC or S-Corp?

[Goblue10]

Not sure why they picked a GP over an LLC. It's a family business so you never know what they were thinking decades ago. I know there is an effort by several of the partners to establish an LLC but the main partners are hesitant so far. In the mean time, I now need to "firewall" our personal assets.

What did you mean "after you know about a liability"? Does this mean once a negligent act, lien, or judgement has or is about to occur or simply signing on as a general partner?

I heard the 401k is protected unless there is an IRS lien/judgement or divorce. Is this your understanding?

Thanks for your comment/help and any new info you have!

[wellmoneyed]

What did you mean "after you know about a liability"? Does this mean once a negligent act, lien, or judgement has or is about to occur or simply signing on as a general partner?

Again everything I write is fiction blah blah blah...
My understanding is once you are aware of an act that may reasonably assumed to create a liability (car accident, slip and fall, etc.) you can't (or it will be rolled back) transfer money into vehicles to protect the money. If you are currently unaware of a lawsuit potential, you can do all the transfers you want. My point was more you should set this up sooner than later, once you hear about a lawsuit it is too late.

I heard the 401k is protected unless there is an IRS lien/judgement or divorce. Is this your understanding?

Yes, that is my understanding.