Tag Archives: General Partners

How Did Trump Make Himself Judgment Proof?

download (9)Unfortunately, litigation has become a way of life in this country. There are over 16 million lawsuits filed each year. More than 70% of the world’s attorneys live in the United States. Contingent fee arrangements encourage lawsuits. Many times the defendant still has to pay his legal bills, even if he wins.

I am sure that Trump found the best safeguard against lawsuits is not to have any attachable assets. He has accomplished this by transferring them into judgment proof entities.

I believe he created an estate plan whereby the vast majority of his assets were transferred into a Family Limited Partnership (FLP) to eliminate or reduce his exposure from future lawsuits.

How did this non-fraudulent transfer protect those assets? The key is the vote. Creditors may get a charging order on a limited partnership interest, but they cannot direct its affairs. Only the General Partners can.

Transfers that are fraudulent can be put aside and creditors can proceed against the debtor’s property. Fraudulent conveyance is judged on a case-by-case. Below are some of the criteria used to make this determination.

1. Consideration paid.

2. Solvency of debtor before and after transfer.

3. Pending claims at the time of transfer.

4. Intent of the debtor.

If the creditors do get an attachment against his limited partnership interest, they have to decide whether they want to expend additional time and money overcoming the following formidable obstacles:

1. Obtain judgment against the debtor.

2. Prove the debtor has an interest in the Limited Partnership.

3. Have the courts issue a charging order.

4. Obtain appointment of a receiver.

5. Apply for foreclosure.

6. Attempt a forced sale.

7. Secure judicial dissolution of the limited partnership.

8. Upon dissolution, receive what is left after priority paying claims.

Once creditors know, the position they are in, they will want to settle claims as soon as possible. If he decides to settle, he will use the following strategies:

1. Start off with 10% of the amount due and go up in increments of 5%.

2. Extend the payments out as far as possible.

3. Don’t offer any collateral or co-signers.

4. If they want to charge interest, prime rate is okay.

5. Have them erase any negative marks on your credit rating.

The most significant advantage of a FLP is that it protects his assets from creditors. The revocable living trust doesn’t. As part of an estate plan, the FLP will accomplish the same probate and tax protection as the living trust plus give him the additional asset protection.