Recently, one of our physician clients asked our advice as to proper ownership of a vessel that she was purchasing.
We explained that there were two aspects to this. First, we need to be concerned about the possible loss of the equity in the vessel to a creditor, should she be sued for medical malpractice or for any other reason. Second, unlike a safe asset- such as stocks and bonds- a vessel is a potential source of liability, should someone be injured.
In Florida, as a general rule, an “owner” of a vessel is liable for damages caused by the vessel only if physically present. The operator is liable for damages caused by the negligent operation of the vessel, etc. However, there are other theories of liability such as allowing an impaired person to operate the vessel which could affect the owner.
For asset protection purposes, there are two bad scenarios. The first is for our client to be the owner and her spouse to be the operator. The second is for both of them to be the owner and for either of them to be the operator. In each case, both of them are jointly liable, which causes the tenancy by the entirety protection to be lost. Tenancy by the entirety only protects property so owned, provided only one spouse is liable.
Ownership of a vessel includes title ownership as well as a “property interest”. Property interest consists of dominion which is rightfully and lawfully obtained over a material thing, with right to its use, enjoyment and disposition. For example, if the vessel were titled in wife’s name, but paid for by the husband, and the husband had the right to use it and dispose of it, he could be treated as the owner because he has a property interest.
In order to reduce the risk of personal liability and safeguard the equity in the vessel, our solution was to title the vessel in a newly created Limited Liability Company, owned by both spouses. In this way, only the operator of the vessel and potentially the LLC would be liable for damages caused by the vessel. For non-vessel liability, such as medical malpractice, the LLC protects the equity in the vessel.
We contacted the property and casualty insurance company for the vessel and were pleased that there was no increase in premium to title the vessel in an LLC.