FINANCIAL SERVICES CLIENT ADVISORY GROUP
Law Alert
Single Member Limited Liability Companies and Asset Protection
By: Harriet B. Alexson
714.384.6578
halexson@bmkalaw.com
©2011. All Rights Reserved.
In an important decision relating to asset protection for single-member limited liability companies, the Florida Supreme Court reviewed a statute that permitted debtors to use a wholly owned limited liability company (LLC) to put their assets beyond the reach of judgment creditors. In Olmstead v. FTC, Case No. SC08-1009 (Fla. June 24, 2010), the Florida Supreme Court ruled that a court may order a judgment debtor to surrender all right, title, and interest in the debtor’s single-member Florida limited liability company to satisfy an outstanding judgment.
Until the Court’s decision in Olmstead, it was generally believed that a charging order was the exclusive remedy available under Florida law. A charging order permits the judgment creditor to collect distributions otherwise payable by the LLC to the judgment debtor until the debt is paid. However, the debtor’s interest in the underlying company is preserved. The charging order does not permit the creditor to seize and force the sale of the debtor’s ownership interest of the LLC or to vote or otherwise participate in management of the LLC.
The Florida Supreme Court ruled that the provision of the Florida LLC statute authorizing the use of charging orders does not constitute the exclusive remedy for a judgment creditor against a judgment debtor’s intent in a single-member LLC. The Court based its decision on the provisions of the Florida LLC statute which does not specifically state that a charging order is an exclusive remedy. A copy of Olmstead v. FTC is available at http://www.floridasupremecourt.org/decisions/2010/sc08-1009.pdf.
This case presents a dilemma for asset protection plans that have been set up for single-member limited liability companies. If you already have established a limited liability company, you should contact legal counsel to determine if this case has an effect on your current plan.
For further information about this interesting topic please contact:
Harriet B. Alexson
Chair Financial Services Practice Group
Bohm, Matsen, Kegel & Aguilera, LLP
695 Town Center Drive, Suite 700
Costa Mesa, CA 92626
Tel: 714.384.6578
halexson@bmkalaw.com
info@alexsonlaw.com
www.alexsonlaw.com
Actual resolution of legal issues depends upon many factors, including variations of fact and state laws. This article is not intended to provide legal advice on specific subjects, but rather to provide insight into legal developments and issues. The reader should always consult with legal counsel before taking action on matters covered by this article.