Liquidating assets before divorce
Therefore the estate now has no liability shield for the terminated single-member LLCs business operations unless it creates a new LLC and contributes the above assets to it, and how this would protect against pre-death acts or liabilities is questionable at best. 1001 et seq., mandates minimum participation, vesting, and funding schedules for covered pension plans, and establishes fiduciary conduct standards for plan administrators. The Plan qualified for favorable tax treatment under IRC 401. Respondent Hendon, the Bankruptcy Trustee, filed a complaint against petitioners (the Plan and Yates, as Plan trustee), asking the Bankruptcy Court to avoid the loan repayment. The District Court and the Sixth Circuit affirmed on the same ground. Rather, Congress objective was to harmonize ERISA with these longstanding tax provisions. Alternatively, the Trustee may elect to distribute the LLC's property to [*9] the bankruptcy estate, and, in turn, liquidate that property himself; and it is FURTHER ORDERED that the Debtor may file a claim, subject to objection in the regular course of this case, for her expenditures made to preserve an asset of this estate based on post-petition mortgage or other payments made by the Debtor. The Court in this case found, however, that unanimous consent is unnecessary in a SMLCC, because there are no other members to protect.
This Catch 22 shows just how important it is for single-member LLCs to have written operating agreements that alter otherwise harmful statutory default rules. Granting Hendon summary judgment, the Bankruptcy Court first determined that the repayment qualified as a preferential transfer under 11 U. The Sixth Circuits determination that Yates was not a participant in the Plan for ERISA purposes obviated the question whether, had Yates qualified as such a participant, his loan repayment would have been shielded from the Bankruptcy Trustees reach. Title I of ERISA and related IRC provisions expressly contemplate the participation of working owners in covered benefit plans. Thus, the goal of a charging order, which is to protect other members, is irrelevant.
Since the setting up of their separate entity and the related planning was admitted to be done for "asset protection" to protect assets from future unknown creditors, the court ruled that this was enough to prove that their actual intent was to engage in a fraudulent transfer. This case concerns Title Is definition and coverage provisions, though those provisions, indicating who may participate in an ERISA-sheltered plan, inform each of ERISAs four titles. Entitled Spendthrift Clause, the provision stated, in relevant part: Except for loans to Participants as [expressly provided for in the Plan], no benefit or interest available hereunder will be subject to assignment or alienation. Title I also contains more limited exemptions from ERISAs fiduciary responsibility requirements for plans that ordinarily include working owners as participants. The Trustee has not asserted any alter ego theory and has not attempted to pierce the veil of the LLC.n3 The Debtor further asserts that because the LLC is "non-profit" pursuant to its operating agreement, no distribution of "profit" will ever be made and thus the value of this interest is zero. n7n6 This reading of 7-80-702 is reinforced in Colo. If the dominant member files bankruptcy, would a trustee obtain the right to govern the LLC? Notwithstanding this limitation, 7-80-702 does not create an asset shelter for clever debtors. Because of the Court's ruling herein, the Debtor may be entitled to a claim for her contributions made to preserve an asset of this bankruptcy estate based on post-petition mortgage payments on the Real Property. The Court rejected the premise that a charging order could even be granted in the context of a SMLLC.
The court concluded that the answer is yes, even if the passive member has a minimal interest and management role in the LLC. Frank Littriello (Littriello), the plaintiff in this case, was the sole member of the Company during the tax periods in question.On April 13, 2007 the United States Court of Appeals decided Littriello. Littriello had several single-member LLCs and was unable to protect any assets from a tax levy because they each were single-member LLCs that were "disregarded." On June 24, 2010 the Florida Supreme Court decided Olmstead. had several single-member LLCs against which the Court ruled in a split-decision that "Florida law permits a court to order a judgment debtor to surrender all right, title, and interest in the debtor's single-member limited liability company to satisfy an outstanding judgment." The Olmstead decision and the problem of single member LLCs were basically ignored when the appellate court affirmed: "Inasmuch as the husband and wife are the only owners of the LLC, and both are parties to the divorce action, we see no reason why any issues should be left for resolution after equitable distribution of the parties' property. Yates was sole shareholder and president of a professional corporation that maintained a profit sharing plan (Plan). In November 1996, however, Yates paid off the loan in full with the proceeds of the sale of his house. The Bankruptcy Court then held that the Plan and Yates, as Plan trustee, could not rely on the Plans anti-alienation provision to prevent Hendon from recovering the loan repayment for the bankruptcy estate. ERISAs multiple textual indications that Congress intended working owners to qualify as plan participants provide, in combination, specific guidance, ibid., so there is no cause in this case to resort to common law. Therefore, the Court does not rule on the issue at this time. Bankruptcy Judge Planning/Estate Plan Aug03In April, 2003, a Federal Bankruptcy Court in Colorado held that a bankruptcy trustee could seize control of a single member limited liability company ("SMLLC") and liquidate its assets to satisfy the debtor-member's creditors. To assign a membership interest, which permits the holder to participate in the management of the LLC, Colorado law requires unanimous written consent by all other members.