Family Limited Partnerships And Divorce - What's The Scope?

Auguest 3, 2004
By Richard Smith, LLB

Any family that has net assets in excess of one million dollars needs to consider the best means possible of protecting those assets. When one considers that the assets' value can include the price of property, it doesn't become too difficult for most of us to qualify. Essential among the issues to consider: what happens if my dad wants to remarry? In this regard, family limited partnerships and divorce go hand-in-hand.

Using a family limited partnership (FLP) structure to protect your family's assets for the next generation is generally consider good practice as, in the event that the marriage fails and ends in divorce, the FLP structure should protect the family's assets. Moreover, most courts in the United States will not award an interest in the limited partnership to an ex-spouse as part of divorce proceedings.

And, even if the court did award an interest in the partnership to an ex-spouse, a correctly drafted partnership agreement will trigger a buy-out clause that enables the other general members of the partnership to buy-out that interest, thus keeping the asset within the control of the family.

Family Limited Partnership - Setting One Up In Case You Get Divorced
The most important single factor behind establishing a your family's limited liability partnership is making sure that you get the partnership agreement correct - as this will govern how the limited liability partnership can operate in the future. In this regard, it is essential that you seek professional advice on this issue. As a yardstick, a properly drafted family partnership agreement should cost circa US$2,500.

Once you have agreed on the partnership agreement, the next big issue is deciding how much of the partnership each family member gets as a limited partner. Normally here, the more senior members of the family, such as Dad and Mum, will have a higher percentage of the limited partnership as they have, more often than not, brought more assets into the family partnership.

Once you have completed these two easy procedures, you are ready to go with using the limited family partnership as a tool to protect your family assets from any future divorce proceedings.