Another attorney told me about his Florida client anticipating a lawsuit by a creditor located in a foreign state (outside Florida) considers forming an LLC and conveying assets out of the debtor’s name to the LLC . The client accepts the risk that a creditor may challenge the conveyance as a fraudulent transfer. The attorney asked me wither his client should form the LLC in the foreign state where the creditor had his headquarters or primary place of business.
Most of my clients suggest forming the LLC in Florida. The disadvantage of the Florida LLC is that the creditor would have the option of pursuing a fraudulent transfer complaint in federal court because the plaintiffs reside in a different state than all the defendants including the LLC. (“complete diversity”) Federal courts are more creditor oriented, generally speaking, than Florida state courts. Federal courts are more apt to impose injunctions and asset freezes on debtors accused of making fraudulent transfers.
Forming the LLC in the state where the creditor is located removes complete diversity between the plaintiff and defendants in a possible fraudulent transfer suit. The plaintiff could not seek remedies through the more creditor oriented federal court system. Alternatively, I suggested to the attorney that his client could get the same protection against federal jurisdiction if he transferred assets to a Florida LLC but arranged for the LLC to be owned partly by a person residing in the creditor’s state.