Florida limited liability companies (LLC) are a popular tool in business planning. Many lawyers use the LLC as an alternative to the Subchapter S corporation as the preferred legal entity for new businesses. Asset protection attorneys also use the LLC as a legal tool for domestic asset protection planning. Membership interests in a limited liability company are not exempt from execution or attachment by judgment creditors, but Florida law gives creditors limited remedies against a debtor’s LLC interest. A judgment creditor cannot attach an LLC member’s interest. A judgment creditor cannot seize assets owned by the LLC to satisfy a judgment against any one of the LLC’s owners. In a properly drafted LLC agreement, the creditor has no rights to inspect the books and records of the LLC.
Under Florida Statutes, a creditor’s remedy is limited to what is known as a “charging lien” against the LLC’s cash distributions. In the event the LLC manager chooses to make no distributions, the member’s creditor gets nothing. There is an IRS revenue ruling that held that in the event an LLC has taxable income allocated to a debtor/member, but where the LLC makes no distributions which are attachable by a charging lien, the member’s creditor is responsible for his income tax liability to a member even though the creditor receives no distributions by virtue of his charging lien.
A debtor’s limited rights under a charging lien, together with this income tax liability, makes creditors reluctant to attack a member’s interest in a limited liability company, and makes the LLC an effective asset protection planning tool.
A limited liability company agreement with effective asset protection features is a complicated legal document which should be drafted by a lawyer experienced in asset protection law.
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