Our LLC Protection Has Hit Bottom
Over the years I have received many calls from Georgia residents wanting asset protection help. Other than inviting these caller to move to Florida there was not much else I could advise them to do for protection. I felt bad from these Georgia debtors because Georgia has few asset protection tools. For instance, the Georgia homestead exemption is limited to $10,000 equity. Georgia has no wage garnishment exemption and no tenants by entireties exemption. In Georgia, you have to pay your debts.
To appreciate the impact of the Ohmstead decision (discussed fully in prior post) it is interesting to compare the asset protection status of Florida LLCs to how Georgia law treats a debtor’s LLC interest. In Florida, after Ohmstead, a creditor can use all available creditor remedies to attack a debtor’s LLC membership interest, certainly in the case of single member LLC and probably in the case of multi-member LLCs as well. Under Georgia law, a creditor may get a charging lien and other remedies, but the Georgia statute specifically prohibits a creditor from foreclosing a debtor’s membership interest, The law also specifically prohibits a creditor from participating in LLC management which prohibition seems to stop a creditor from forcing the LLC manager to make distributions which could be subject to a charging lien. Georgia law has better LLC protections than does Florida law after the Ohmstead decision.
I never thought Florida’s asset protection laws could be worse than Georgia, but its happened with respect to LLC interests. It appears that our LLC protection has hit bottom.
Seems to me that charging order protection is not the "be all and end all" either. The judgment debtor will get a K-1 for the undistributed income and no cash to pay the tax. Further, from what I understand, a charging order can direct the LLC to make distributions, prohibit the LLC from purchasing assets, etc. Lot of theory here, but no-one ever seems to have any practical experience with the charging order (at least I have not seen it in the literature). It would appear to me that it could be better for the judgment debtor for the judgement creditor to actually own the interest with no voting rights. You can ensure this happens with proper drafting. If the creditor actually owns the interest, then it is clear they get the K-1 with potentially no cash to pay the tax. May be more potential bargaining leverage here.
In either event, I don't think it is abosolutely clear which potential remedy gives the debtor greater bargaining power. I suppose it lies with the drafter and crafter of the Operating Agreement. I suspect, at least with respect to multiple member LLCs, this will be straightened out in the next legislative session.
I have single member LLC's. What can I do to protect myself personally from a future creditor? The point of the Single member LLC was to have adequate personal protection.