Asset Protection Law Journal : Asset Protection Lawyer & Attorney : Kenneth J. Laino : Schneider Smeltz Ranney & LaFond Law Firm : Trusts, Estate Planning

In the United States, forming an LLC in a particular state (such as Delaware) can provide significantly better asset protection advantages than forming that LLC in certain other states.  The same holds true for offshore LLCs.  Nevis is currently one of the best offshore jurisdictions for a limited liability company.

Forming a limited liability company in Nevis (a small island in the Caribbean) is relatively easy and can generally be done fairly quickly (usually within 4 to 5 working days).  The Nevis Limited Liability Company Ordinance of 1995 makes the structure of a Nevis LLC extremely flexible.  It is essentially a matter of contract among the members.  Nevis LLCs offer their members full privacy, as there is no public filing requirement regarding the identity of members.

Legal judgments obtained against a Nevis LLC in any foreign jurisdiction must be domesticated in Nevis.  This can prove to be expensive and time consuming; and Nevis attorneys are not allowed to work on a contingency basis.  A member's interest in a Nevis LLC has "charging order" protection similar to that offered by many states in the United States.  Currently, no taxes are imposed on assets or income of a Nevis LLC as long as those assets and income originate outside of Nevis.

Many considerations are involved in a decision to form an offshore limited liability company.  If a decision is made that an offshore LLC is appropriate, Nevis is currently a good location to form such an entity.

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I have discussed the Florida Supreme Court's decision in Olmstead in other posts on December 20, 2010, September 22, 2010 and August 2, 2010.  In addition to severely weakening the asset protection advantage of a single member LLC in Florida, the decision unfortunately calls into question the effectiveness of multi-member LLCs in that state.

There are various alternatives for those who are currently members of a Florida multi member LLC.  You can consider converting the LLC into a different form of entity (such as a limited partnership); change the management structure from a member managed form to a so-called manager-managed form; create non-voting interests for certain owners; or re-form the LLC in a state that has well settled charging protection law (such as Delaware, Wyoming, Nevada or Texas).  It may also be reasonable to wait and see if the Florida courts or the legislature clarify the situation with respect to multi-member LLCs.

In any event, it is critical to get the right professional help before making any changes your Florida LLC (or any other LLC).  Changing the ownership structure, management structure, or state of formation of an LLC can have tax and other considerations that may need attention.

For Florida attorneys, I recommend an excellent article in the Florida Bar Journal, Volume 84 (December 2010).  The authors provide a thorough review of the impact of Olmstead on multi-member Florida LLCs.

The Olmstead decision provides a stark reminder of two very important points:

1. Asset protection law varies significantly from state to state; and
2. Asset protection laws are constantly changing, both through statutory changes and court decisions.

Having a competent professional assist you with your asset protection planning is vitally important.  It is also important to have any asset protection plan reviewed periodically because the law in this area is evolving very rapidly.

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On June 24, 2010, the Florida Supreme Court ruled in Olmstead v. Federal Trade Commission that a charging order is not the exclusive remedy for a judgment creditor against a debtor's single member LLC interest.  This means that in Florida, a judgment creditor can essentially seize a debtor's single member LLC interest and gain full control of the LLC.  This was obviously a big blow to the usefulness of single member LLCs -- especially in Florida.

Some commentators are acting like all single member LLCs are now essentially useless.  But this is simply not the case.  First of all, charging order protection for single member LLCs is still available in other states.  For example, earlier this year Wyoming law was specifically amended to provide that for a single member LLC formed in that state, a charging order is the exclusive remedy of a judgment creditor.  Several other states offer the same protection.

Even in Florida, a single member LLC may still be an acceptable part of an overall asset protection plan.  Such an LLC still provides limited liability protection for the owner from a judgment against the LLC itself.  So heavily mortgaged real estate held in a single member LLC may still not raise a big concern from an asset protection standpoint.

It is obvious that a single member LLC formed in certain states will offer significantly better protection than a single member LLC formed in many other states.  Multi member LLCs generally offer better asset protection than single member LLCs.  But each situation has to be analyzed on its own.  Asset protection must be integrated with various personal, business, tax and estate planning considerations.

The Florida Supreme Court decision in Olmstead was definitely a blow to the usefulness of single member LLCs.  But a single member LLC (especially one formed in certain states other than Florida) can still be a valuable component of a viable asset protection plan.

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A fascinating article by Daniel J. Wakin in the November 29, 2010 New York Times reveals that even Mozart should have done some asset protection planning.

An aristocratic friend of Mozart's sued him and won a judgment for an amount of more than two times Mozart's annual income.  The judgment called for garnishing half of Mozart's salary.  Mozart died shortly after the judgment was entered against him, and it appears that the creditor chose not to press Mozart's widow for payment of his debt.  But it is clear that the judgment caused Mozart a lot of stress and financial difficulty.

The article on Mozart shows that even in the 18th century, high profile and high net worth individuals faced significant financial difficulties from legal judgments against them.  If Mozart were alive today, I am confident that he would recommend very serious attention to an asset protection plan.  And he would urge you to develop such a plan before you run into financial difficulties -- not after there is a lawsuit or judgment against you.

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