Charging Order and LLC Case Law in Florida

This page analyzes the most important Florida court decisions on charging orders.

What a Charging Order Lets a Creditor Do

A charging order against a Florida LLC member’s interest is a lien on that interest: once a court enters the order, the LLC must pay the creditor any distribution it would otherwise pay the debtor member. Against a multi-member LLC, the order is also the creditor’s only remedy under § 605.0503(3), a rule the First District (Capstone Bank, 2017), the Third (Ramos, 2021), the Fourth (Young, 2014), and the Fifth (McClandon, 2017) have all applied.

Kostoglou v. Fortuna, No. 4D19-168 (Fla. 4th DCA Feb. 19, 2020). Leading case. Section 605.0503(1) requires the LLC to pay the creditor every distribution it would otherwise pay the debtor member, so a charging order that granted the lien but withheld the debtor’s 5% share of distributions was reversed in part and remanded. The LLC had more than one member, and the creditor was enforcing a domesticated Ohio judgment.

McClandon v. Dakem & Associates, LLC, 219 So. 3d 269 (Fla. 5th DCA 2017). A court enforcing a charging order may appoint a receiver, because § 605.0503(7)(c) and (d) preserve equitable principles and the court’s continuing jurisdiction to enforce the order, but it may not give the receiver managerial control. The order divests the debtor only of the economic opportunity to obtain profits and distributions; it charges the membership interest, not the member’s managerial rights, so the Fifth District affirmed the receivership and reversed the grant of management control.

What a Charging Order Does Not Allow

A charging order against a Florida LLC interest does not let the creditor take the membership interest, run the LLC, freeze the LLC’s own assets, garnish the member’s distributions, or force the debtor to surrender units. Florida’s appellate courts have reversed orders that reached past a lien on distributions to do any of those things.

Ramos v. Mississippi Real Estate Dispositions, LLC, No. 3D19-2513 (Fla. 3d DCA Jan. 13, 2021). Leading case. In proceedings supplementary, the trial court ordered the debtor to surrender his membership certificate and directed the bank acquiring the LLC to pay the creditor $2,827,034 for his units; the Third District reversed. The exclusivity rule of § 605.0503(3) confines the court’s equitable powers under § 56.29(6), and an order reaching past a lien on distributions exceeds what § 605.0503(1) permits. The LLC had more than one member, so foreclosure was not available either.

Abukasis v. MTM Finest, Ltd., 199 So. 3d 421 (Fla. 3d DCA 2016). No authority exists for an order transferring a debtor’s membership interest to the judgment creditor in full or partial satisfaction of a money judgment. The Third District reversed such an order as falling far short of what § 605.0503 requires and called the creditor’s fallback to the fraudulent-transfer remedy statute, § 726.108, equally flawed.

Gorrin v. Poker Run Acquisitions, Inc., 237 So. 3d 1149 (Fla. 3d DCA 2018). The part of an order in proceedings supplementary that froze all of the LLC’s assets exceeded the scope § 605.0503 allows, and the Third District reversed it. The debtor held 95% of the LLC; a co-member held the other 5%.

Young v. Levy, 140 So. 3d 1109 (Fla. 4th DCA 2014). A judgment creditor cannot garnish a member’s distributions from an LLC. The charging order is the sole and exclusive remedy, and calling the money “profits” or “dividends” changes nothing, because the statute defines a member’s interest to include the share of profits and the right to receive distributions. The LLC had two members, and the case was decided under the predecessor statute, § 608.433, whose charging-order provision became § 605.0503.

Pansky v. Barry S. Franklin & Associates, P.A., 264 So. 3d 961 (Fla. 4th DCA 2019). A written charging order that also transferred the debtor’s right, title, and interest in the LLC to the creditor exceeded § 605.0503. The court had orally reserved ruling, and it was still disputed whether the debtor was the LLC’s sole member, the fact on which the foreclosure route depends; the Fourth District reversed.

What the creditor seeks	Allowed?	Authority
A lien on the member’s distributions, paid by the LLC to the creditor	Yes	§ 605.0503(1); Kostoglou (Fla. 4th DCA 2020)
A receiver to collect the charged distributions	Yes	McClandon (Fla. 5th DCA 2017)
Foreclosure and sale of the interest	Single-member LLC only, on the statutory showing	§ 605.0503(4)–(6)
Transfer of the membership interest to the creditor	No	Abukasis (Fla. 3d DCA 2016); Pansky (Fla. 4th DCA 2019)
Management of the LLC, through a receiver or otherwise	No	McClandon (Fla. 5th DCA 2017)
A freeze on the LLC’s own assets	No	Gorrin (Fla. 3d DCA 2018)
Garnishment of the member’s distributions	No	Young (Fla. 4th DCA 2014)
Compelled surrender of the member’s units	No	Ramos (Fla. 3d DCA 2021)

Single-Member LLCs and Olmstead

A single-member LLC interest in Florida gets a charging order but not exclusivity: Olmstead let a creditor take the whole interest, and the statute that answered it now lets a court order the interest foreclosed and sold.

Section 605.0503(3) makes the charging order the sole and exclusive remedy against a member’s transferable interest, and subsection (6) says foreclosure of a multi-member LLC interest is not available and may not be ordered. Under subsections (4) and (5), a court may order a single-member interest foreclosed when distributions under a charging order will not satisfy the judgment within a reasonable time, and the buyer takes the entire interest and becomes the member. Subsection (7)(b) leaves fraudulent-transfer law untouched.

Olmstead v. FTC and the Rule Before the Statute

Florida’s partnership and limited partnership statutes said the charging order “provides the exclusive remedy” (§§ 620.8504(5), 620.1703(3)); the LLC Act’s provision, former § 608.433(4), did not say so, and that omission decided Olmstead.

Myrick v. Second National Bank of Clearwater, 335 So. 2d 343 (Fla. 2d DCA 1976). After Florida adopted the Uniform Partnership Act, a judgment creditor of an individual partner could no longer reach the partner’s interest by levy and sale under § 56.061. The charging order became the required first step, with any further proceedings, including a receivership, under the court’s supervision. The stated reason was “to prevent disruption of the partnership business and the consequent injustice to other partners.” 335 So. 2d at 345.

Givens v. National Loan Investors, L.P., 724 So. 2d 610 (Fla. 5th DCA 1998). A judgment creditor holding a charging order against a limited partnership interest may not foreclose on it by execution sale. Because the statute gave the creditor only the rights of an assignee of the partnership interest, foreclosure was inconsistent with the limits the act placed on the creditor’s remedies.

Olmstead v. FTC, 44 So. 3d 76 (Fla. 2010). Leading case. The Florida Supreme Court held the LLC Act’s charging-order provision did not displace levy and sale under § 56.061, so a court could order a sole member to surrender the interest. The reasoning was textual: a sole member’s interest is assignable, since no other member must consent, and the LLC Act lacked the partnership statutes’ exclusive-remedy language. The 2011 amendment superseded the holding in part: the charging order is exclusive for multi-member LLCs, and statutory foreclosure replaced levy and sale for single-member ones.

Priority Among Competing Creditors

A Florida charging order exists only when a court enters one on application, so a creditor who holds a judgment lien on a member’s interest but never applies for a charging order takes no priority over a later creditor who does.

Capstone Bank v. Perry-Clifton Enterprises, LLC, 230 So. 3d 970 (Fla. 1st DCA 2017). Leading case. A judgment lien is not a de facto charging order. A former spouse whose Alabama divorce judgment created a lien on the husband’s membership interest, recorded but never applied on, took no priority over the bank’s later charging order, because § 605.0503(1) requires an application to the court.

Fraudulent Transfers of LLC Interests

Florida’s charging-order statute leaves fraudulent-transfer law untouched, so the charging-order limit does not shelter an LLC interest that was itself fraudulently transferred.

Regions Bank v. MDG Lake Trafford, LLC (In re McCuan), 603 B.R. 829 (Bankr. M.D. Fla. 2019). After trial, the bankruptcy court found that a developer facing about $14.2 million in judgments had fraudulently transferred his own MDG-Patriot, LLC interest to an insider entity. The remedy was a § 726.108 money judgment against the transferee for the interest’s value, $78,000, rather than the remedy § 605.0503 provides; no law lets a debtor fraudulently transfer an LLC interest with impunity. 603 B.R. at 858. The LLC itself and its assets were not reached.

Gorrin v. Poker Run Acquisitions, Inc., 237 So. 3d 1149 (Fla. 3d DCA 2018). Summary judgment finding actual fraudulent intent under FUFTA was reversed: intent is rarely resolvable on summary judgment, and the trial court had weighed credibility and struck the debtor’s estate-planning affidavit as a sham.

Alter Ego and Reverse Piercing

A creditor who proves a controlling shareholder formed or used a corporation to hide assets from a liability he already owed may reach the corporation’s property itself.

Estudios, Proyectos e Inversiones de Centro America, S.A. (EPICA) v. Swiss Bank Corp. (Overseas) S.A., 507 So. 2d 1119 (Fla. 3d DCA 1987). Leading case. A corporation is treated as its controlling shareholder’s alter ego, and its property attached for his debt, where he formed or used the corporation to secrete assets and avoid preexisting personal liability. The Third District upheld a prejudgment attachment of a horse farm the shareholder had moved into his corporation in 1981, and its rehearing opinion said the ruling decided nothing on the merits.

Braswell v. Ryan Investments, Ltd., 989 So. 2d 38 (Fla. 3d DCA 2008). Outsider reverse piercing reaches a corporation’s asset only where the owner formed or used the corporation to secrete assets from a liability that already existed. A former wife holding roughly $24 million in judgments could not execute on the former marital home, because the corporation had held title since 1997, years before her claims arose. The court did not reach the other piercing elements and left the husband’s ownership of the shares to be established in his estate.

Both decisions involved corporations. Florida’s LLC statute preserves alter ego, equitable lien, and constructive trust alongside the charging order (§ 605.0503(7)(c)). Courts in other states have applied the remedy to LLCs and limited partnerships directly, granting it in Litchfield v. Howell and C.F. Trust v. First Flight and refusing it in In re Blatstein, where the corporate form had been respected.

What Bankruptcy Does to LLC Protection

When an LLC member files bankruptcy, the member’s entire interest passes to the estate, and whether the trustee also gets governance rights depends on how many members the LLC has and, with more than one, on a split among bankruptcy courts.

In re Albright, 291 B.R. 538 (Bankr. D. Colo. 2003). Under Colorado law, the Chapter 7 trustee of a sole member and manager took her entire interest, governance rights included, and could cause the LLC to sell its real property. With no “other members” to consent, the charging-order limitation “serves no purpose in a single member limited liability company.” 291 B.R. at 541. Footnote 9: a non-consenting co-member defeats trustee governance “even if she held only an infinitesimal interest,” but a nominal co-member stays exposed to avoidance under 11 U.S.C. §§ 544(b)(1) and 548(a).

Movitz v. Fiesta Investments, LLC (In re Ehmann), 319 B.R. 200 (Bankr. D. Ariz. 2005). Denying a motion to dismiss, the court held that an operating agreement whose only member obligation was an option not to withdraw, priced at $1.00, was not an executory contract. Section 541(c)(1) therefore voided the agreement’s and Arizona law’s assignee-type restrictions against the trustee, who took every right the debtor, a non-managing member, had held. The judge’s December 2005 opinion, 334 B.R. 437, was withdrawn in a settlement, 337 B.R. 228 (Bankr. D. Ariz. 2006); the January opinion stands.

Can a Bankruptcy Trustee Exercise a Member’s Management Rights?

Bankruptcy courts are divided over whether a trustee who takes a member’s LLC interest also takes the member’s governance rights or holds only the economic rights an assignee would have.

§ 541(c) Overrides the State Assignee Limits

In Ehmann, 319 B.R. 200, the operating agreement was not executory, so § 541(c)(1) voided the assignee-type restrictions in the agreement and in Arizona law, and the trustee took every right the debtor held. The court held the trustee entitled to “all of the rights and powers” over the company that the debtor had when the case began. 319 B.R. at 205-06.

State Dissociation Law Confines the Estate

In re Garrison-Ashburn, L.C., 253 B.R. 700 (Bankr. E.D. Va. 2000). A Virginia LLC member who files bankruptcy is dissociated by statute, losing all management rights and keeping only an assignee’s economic rights. Because the operating agreement merely supplied the structure for managing the company and imposed no duty to contribute capital, manage, or render services, it was not executory, so §§ 365(c) and (e) could not undo the statutory dissociation. The estate took the interest, burdened with the duties that came with it.

No Florida decision resolves the split; Ehmann and Garrison-Ashburn are Arizona and Virginia bankruptcy rulings that do not bind a Florida court. For planning, whether an operating agreement’s affirmative member obligations do any work depends on which line the forum follows.

Offshore and Out-of-State LLCs

Federal judges in Florida have twice treated an LLC interest as intangible property that sits with its owner, so a Florida resident’s stake in a company formed elsewhere, Nevis, Wyoming, or Nevada included, faces Florida’s remedies rather than the foreign statute. Florida’s appellate courts have not ruled, and the Colorado Supreme Court in JPMorgan Chase Bank, N.A. v. McClure, 393 P.3d 955 (Colo. 2017), located the interest in the state of formation and called the question a long-running one.

Wells Fargo Bank, N.A. v. Barber, 85 F. Supp. 3d 1308 (M.D. Fla. 2015). Leading case. Ruling on a motion to dismiss, the court held that a Florida resident’s membership interest in a single-member Nevis LLC was intangible personal property located in Florida. Because the Florida and Nevis creditor remedies conflicted materially, Florida’s situs rule made Florida law govern. The judgment creditors stated a claim to foreclose the sole member’s interest, or alternatively for a charging order, and actual and constructive fraudulent-transfer claims resting on six badges of fraud.

Wyoming’s LLC statute makes the charging order the exclusive remedy for every member, “including any judgment debtor who may be the sole member,” and foreclosure is “not available” and “may not be ordered by the court” (Wyo. Stat. § 17-29-503(g)). Nevada’s does the same “whether the limited-liability company has one member or more than one member” (Nev. Rev. Stat. § 86.401(2)(a)), with no foreclosure.

A Florida resident who forms an out-of-state or offshore LLC should expect a Florida court to follow Barber and apply Florida’s remedies. The only structure that avoids that result is an offshore trust with an independent foreign trustee, whom a Florida court cannot compel.