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Ask Dave

How Can I Limit Business' Liability?

What is the best way for Leigh to get out of the small business partnership she's in?

QUESTION: Leigh in Florida has property in her name along with a business partner. She is considering paying off the property and getting an LLC to limit her liability. Dave reviews if she can buy out her partner instead of staying in the partnership.

Dave's ANSWER: That would take the general liability off of you, but not the financial liability. You are still on the mortgage. If it's not the financial liability, then you are worried about being sued.

Why don't you just buy him out instead? If I had to choose in your situation, since you are already there, I would choose having a mortgage versus having a partner. If the house is worth $120,000 and you owe $60,000, then it would cost you $30,000 to buy him out of your half. The full market value minus the mortgage and minus the expenses it would take to sell it.

If you guys decided that neither one of you wanted it and sold it, then split whatever comes out. That would be about $20,000 or $25,000. If I were you, if he'll go get a new mortgage and take your name off the mortgage, I'd let him buy you out for $25,000, or you buy him out for $25,000. I would do that first, and then go about paying off the mortgage.

Get rid of the partner, and then get rid of the debt. Both of them are trouble, but partners are more trouble than debt. That's how I'd work it.