An important rationale for offshore asset protection is effecting the removal of the debtor’s asset beyond the jurisdiction of U.S. courts. For example, people choose to form LLCs outside the U.S. because they believe a U.S. court would not have jurisdiction over the debtor’s membership interest in order to impose a charging lien. That theory was rejected in a recent decision by a federal court in Florida.
Five years ago the debtor formed an LLC in Nevis, W.I. Nevis has a favorable LLC statute, and Nevis LLCs are popular offshore planning tools. Creditor obtained a money judgment a couple years ago and now seeks to enforce the judgment through a charging lien on the debtor’s interest in his Nevis LLC. The debtor moved to dismiss the charging lien action on the grounds that the Florida district court does not have jurisdiction over the debtor’s membership interest in an LLC formed outside the U.S.
The court rejected the debtor’s challenge on the basis of court jurisdiction. The court said that unlike stock certificates in a corporation a membership interest in a limited liab ility company is intangible personal property which “accompanies the person of the owner.” The court said the LLC membership interest is situated with the debtor at his Florida residence where it is subject to U.S. court jurisdiction. The court also found that Florida law, not Nevis law, applies to the creditor’s application for a charging lien because the situs of the asset determines what laws are applicable to issues related to the charging lien.
This is the first Florida case dealing directly with court jurisdiction over a foreign LLC. The decision challenges asset protection plans that rely upon foreign LLC planning. The case also applies to offshore trusts where the trust beneficiary resides in Florida.
A different result could be reached where the foreign LLC ‘s membership is evidenced by physical certificates similar to stock certificates issued by a corporation. The decision indicates that physical evidence of ownership is tangible personal property whose location and subject jurisdiction is not tied to the owner’s place of residence.
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