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What Does Nevada Have To Do With Asset Protection?

By Howard C. Stross
April 19, 2012

Please read Will a Florida Limited Liability Company Still Protect Real Estate? and Florida Limited Liability Company – Update, before you read this post.

The use of a limited liability company (LLC), particularly to own investment/business real estate, is a favorite tool for asset protection in Florida and other states. State laws are not all the same concerning how effective an LLC may be in protecting the assets of the LLC from the clutches of a creditor of a member.

A one-member Florida LLC is not an asset protection device – period. However, that is not the case in a state like Nevada as explained below.

  • You discussed asset protection with your Florida attorney and CPA.
  • A one-member LLC will be established to own Florida real estate.
  • You’re the LLC’s only member and manager.
  • You’re hesitant to use a Florida one-member LLC because of the Olmstead case.

What do you do?

For years, attorneys have formed legal entities in other states for tax reasons. Over the last several years, there’s another popular reason – asset protection – which is the use of an LLC or multiple LLCs, to own assets and thus not own the assets in one’s individual name.

You may form a one-member LLC, but instead of forming it under Florida law, it is established under Nevada law.

On March 1, 2012, the Nevada Supreme Court, in Weddell v. H2O, Inc. (128 Nev. Adv. Opinion 9, dated March 1, 2012), held that a creditor of a member of a Nevada LLC has only the right to “…receive[ing] a share of the economic interests in a limited liability company, including profits, losses, and distributions of assets.”  The managerial interest of the member debtor in the LLC remains with the debtor member.

After a court enters a “charging order”, the debtor member of the LLC retains all of the rights the member had prior to the entry of the charging order, except the right to future distributions from the LLC.  That’s a far cry from selling off all of the assets of a one-member LLC, which could be the case in Florida.

The Weddell provides comfort to a person that wants to form a one-member LLC to own assets located in Florida. Forming a Nevada LLC will allow a Florida court to apply Nevada law at least relative to the only remedy that the LLC may be subject to, a charging order.

A charging order directs the management of the LLC to make distributions to the creditor that it would have made to the member debtor.  It does not permit a creditor of that member to affect the management of the LLC or reach its assets.

For asset protection planning, talk with your attorney and CPA about the use of a limited liability company for assets located in Florida (or anywhere else for that matter), even if the limited liability company will only have one-member.

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