The Case of the LLP
The first case involved a Chapter 13 debtor who had a habit of transferring his property into an LLP (limited liability partnership), and then back himself, and then back and forth. The Debtor explained that there were no other partners, and that he was the sole owner of the property for many years. He claimed he did this in an effort to obtain financing.

The Bankruptcy Court found that an LLP is a distinct legal entity, and because it was a distinct legal entity (created by completing a form and paying a filing fee) it was the LLP that had the ownership interest in the property, not the Debtor. The Debtor had an interest only in the LLP, not the home. Since the LLP conveyed the residence to the Debtor within the 1215 day period, the homestead was capped at $125,000. The home was claimed to be worth $1.25 million, with liens of only $760,000, leaving well over $300,000 in equity for creditors.

Yours for a Buck
In the second case, a husband and wife bought their home together in 1988, but in 2001 the husband conveyed his interest in the property to his wife (for $1.00), and the wife granted a mortgage on the property. The wife was the only responsible party on the promissory note. In 2005, the wife conveyed the home to her husband and her as “tenants by the entirety” for $1.00. At that time, the Debtor filed a Declaration of Homestead. About 6 months later, the husband filed bankruptcy under Chapter 7.

Even though the Debtor remained on the property since he originally purchased it with his wife in 1988, and even though they remained married that entire time, the Court found that the Debtor had acquired his interest in the property within 1215 days of the filing and therefore, his homestead exemption was capped at $125,000. There is no mention in the decision how this impacts the non-debtor wife’s interest in the property. In this case, the home is claimed to be worth $500,000 with a mortgage of $85,000, but only she is the obligor on that mortgage.

Both cases presented facts of what might otherwise be viewed as innocuous property transfers. However, in both cases, these seemingly innocent transfers ended up costing these Debtors a lot of money, particularly in the second case. The wife did not seek bankruptcy protection, and the mortgage was solely in her name. Based on the facts, I cannot think of any good reason to transfer the home back to the husband.

I raise this because many times I have been asked by prospective clients a question similar to this one: “should I transfer my home to my father/brother/mother/ friend/cousin….” These cases serve as a reminder as to just of few reasons why my answer is almost always “no.”