Formation of LLCs and limited partnerships in states outside Florida, such as Nevada and Wyoming, is widely promoted on the internet. The promised benefit of forming a partnership in a state other than Florida (a “foreign state”) is that foreign state partnership laws are more protective of a debtor’s interest in an FLP or an LLC. Promoters of foreign state FLPs argue that their state law will best protect the Florida debtor’s FLP interest.
The supposed advantage of foreign FLPs and LLCs assumes that the laws of the foreign state will apply to a collection effort made against your investment. The general rule is that the law that applies to a creditor’s execution of a civil judgment is the law of the state where the debtor resides. If you live in Florida, then Florida law governs your creditor’s efforts to execute the judgment against your FLP/LLC interest regardless of where you filed your entity. Contrast this rule to what is know as the “internal affairs doctrine” which holds that internal disputes among partners are governed by the law of the state of filing or incorporation. The internal affairs doctrine has nothing to do with defending judgment collection against your investment interest in an FLP/LLC.
The internal affairs doctrine means that if you file in Nevada or Wyoming, disagreements with your fellow partners will be governed respectively by Nevada or Wyoming law. A creditor’s charging lien against your partnership or membership interest will be governed by Florida law so long as you are a Florida resident regardless of where your FLP or LLC is formed and maintained. Assertions of asset protection advantages of Nevada or Wyoming partnerships (or LLCs) for Florida residents are “hype” designed to sell you something you do not need. As stated elsewhere, filing a partnership or LLC in a foreign state may reduce your filing fees.