LLCs are useful asset protection tools because Florida law limits a creditor’s remedy to a charging lien on distributions to LLC members. One of my clients was relocating to Ohio and asked if he would get the same LLC asset protection after he became an Ohio resident owning a Florida LLC. I explained that the collection and asset protection laws pertaining the LLCs depends upon the LLC law where he lives and not the laws of the state where the LLC was created.
The issue for this client is whether Ohio had the same charging lien limitations on collection against debtor LLC members. Ohio law provides that a charging lien is a creditors exclusive collection remedy against an LLC interest. Ohio law states that a charging lien attaches to distributions of profits, gains, income, credits etc. An Ohio court case held that a charging lien did not attach to a member’s withdrawal of a prior capital contribution.
Florida’s LLC statute states that a charging lien attaches to “distributions” but it does not further define the content of distributions. A Florida LLC member could argue that a withdrawal of a prior capital contribution is not a “distribution” and that the term distribution applies to earnings and profits.
It may be a good ideal for Florida residents using an LLC as an asset protection to including in their operating agreement a provision that distinguishes capital withdrawals from distributions.