Many clients believe that their family members and friends can be part of their asset protection plan. This week one of my clients consulted with me about whether his interest in a wholly owned Florida limited liability company business would be an effective defense against a possible civil judgment against the client for actions unrelated to the operation of the business The client understood that the creditors’s collection remedy against his interest in the LLC would be limited to a charging lien on distributions from the LLC to the client/owner. However, the client was concerned about not being able to receive money earned by the LLC which the client had relied upon to pay personal expenses. The client made several proposals and suggestions about how his friends and family could help him receive money from his limited liability company.
These suggestions included, for example, the LLC paying salary to a friend and having the friend pay his personal bills; borrowing money from a family member secured by a lien on LLC distributions but then paying back the loan in cash; selling his LLC interest to a friend for nominal consideration with an unwritten understanding that the client was entitled to profits and loans from the LLC etc, etc.
Friends and family are not asset protection tools. It is almost always a bad idea to base an asset protection plan on your trust in your friends and family. The well-intentioned help from those closest to you, and from people you most trust, usually has unintended poor consequences for all involved.
Any fraudulent conveyance actions will name the cooperating friend or family member as a defendant. Your asset protection plan will drag your friend or family member into your legal problems and require them to get their own attorney to protect their interest. The creditor has the right to question under oath anyone who is involved in your business or financial picture. When placed under oath your best friends and favorite family member will likely choose to tell the truth rather than commit perjury. Although initially cooperative, these people will ultimately undo the asset protection plans to protect their own family financial interest. In Florida, there are usually effective asset protection strategies that do not rely on other people, especially those people whom you care for.