Now, What Do I Do? Options To Protect Single Member LLCs After Ohmstead Decision
Word of the Florida Supreme Court LLC decision in the Ohmstead case is gradually spreading through the legal community. This is the decision that expressly deprived single member Florida LLCs most asset protection benefits because said creditors are not limited to the restrictive charging lien remedy against debtor’s single member LLC interests. Creditors can use all available remedies including levy and foreclosure of LLC interest in single member LLCs and possibly interests in multi-member LLCs as well. Single member LLC owners have been contacting me and other asset protection attorneys asking what they can do to protect their single member LLC interest. Attorneys have been conferring among themselves looking for alternatives.
What we know now, with certainty, there are several ideas but there is no answer. It will take years before an appellate court will evaluate anyone’s proposed single member LLC fix or alternative.
Here are some of the options I’ve considered to protect debtor’s with existing single member LLCs in no particular order.
One: add an unrelated business partner as a new member. If you add a member without receiving consideration the reorganization could be attacked as a fraudulent transfer. There is no guidance on how much LLC interest the second member has to own to make the LLC a legitimate multi-member LLC.
Two: add as a second LLC member a grantor trusts with your heirs as trust beneficiary, or a partnership with a grantor trusts or family member as partner.
Three: reorganize the LLC in a state with more favorable asset protection laws for single member LLCs. There is clear law on whether the foreign state’s law or Florida law would apply to a creditor attack of the Florida debtor’s interest in a single member LLC.
Unfortunately, none of these fixes is simple. All fixes will require professional legal and accounting help. And, none of the fixes is guaranteed. What is certain is that taking no action means that your single member LLC is now fully exposed to creditor attack.
Dose Delaware offer more favorable asset protection laws for single member LLCs???
Do you need a second LLC member like a grantor trust for Delaware???