Filing Single Member LLCs In Foreign States For Better Asset Protection
People are trying to find a way to protect single member LLCs after the Florida Supreme Court said that creditors can levy or foreclose a debtor’s single member LLC interest. I frequently hear questions from clients and from emails sent by blog readers about forming a single member LLC in states such as Wyoming or Nevada whose laws restrict creditors to charging liens against single member as well as multi-member LLCs.
I’ve stated previously on this blog my opinion that courts enforcing a Florida judgment against a Florida debtor’s single member LLC would apply Florida law (charging lien not exclusive remedy) rather than the law of the foreign state where the LLC was formed. I still have no knowledge of any judicial ruling on this issue. Not surprising, since the question became important only this past summer when the Florida court drew the distinction between the asset protection of single and multi member LLCs.
If you are going to form a single member LLC outside Florida in a preferred jurisdiction your chances of defending collection under the laws of foreign state will improve of your LLC has property in the filing state. For example, if your LLC is holding financial assets you should open a bank account and/or brokerage account in the LLC’s name at a financial institution with branches located solely within your chosen filing state. You cannot move the LLC’s Florida real estate to your filing state, but you can move its cash and securities. The more LLC property located in your filing state, and the less LLC property in Florida, the better your argument to apply the filing state’s LLC laws pertaining to collections against your single member LLC.
Jonathan-I would be very hesitant to give anyone encouragement that a single member LLC, in any state, will ultimately survive creditor attack. I don't believe either Wyoming or Nevada addressed the issue of the charging order remedy when authorizing single member LLC's. I believe it is just a matter of time when all states will eliminate, by statue or court decision, the charging order for single member LLC's since it has no purpose in those situations. Here in Michigan the issue has not reached the courts but I am converting single member LLC's to multimember LLC's where asset protection is our goal.
Howard Young