Florida Asset Protection : Asset Protection Law & Planning in Florida - Florida Homestead Exemption

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.

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Using a Florida limited liability company as an asset protection tool used to be relatively easy. Attorneys understood that a creditor’s sole remedy against a debtor’s interest in a Florida LLC, especially multi-member LLCs, was a charging lien. The charging lien gave the creditor restrictive and impractical tools to capture money from the debtor’s LLC interest. No more. The Florida Supreme Court’s Olmstead decision last month seems to give creditors the right to use any and all collection tools, not just the charging lien, to go after a debtor’s membership interests.

The next line of asset protection defense is the LLC operating agreement. Contractual provisions in the LLC operating agreement can minimize a creditor’s power to compel LLC distributions or liquidate LLC assets. Effective asset protection language is not in "off the shelf" or standard LLC operating agreements.

Prior to the Olmstead ruling a small business owner might get by with a "do it yourself" LLC. The owner could create an LLC online and buy a standard operating agreement online from any of the many sites that market legal forms. Once you realized the LLC was the preferred asset protection business structure a competent business owner could achieve good asset protection with the "do it yourself" Florida LLC. Not any longer. Do it yourself may work at Home Depot, but it won’t protect your Florida LLC from judgment creditors.

LLC owners concerned about asset protection are going to have to do something. There are many asset protection alternatives to the basic LLC structure. The simplest and cheapest next step - not necessarily the best or the most effective step- is to have an attorney customize your LLC operating agreement with provisions that will weaken and deter your prospective creditors. Yes, it may cost money. But, these things can happen whenever the Florida Supreme Court is in session.

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