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.