Introduction

A Florida LLC (Limited Liability Company) protects assets in several ways. First, an LLC. like a corporation, protects its members' personal assets from the LLC's debts. If, for example, a creditor obtains a judgment against the LLC, it can only recover against the amount that each member of the LLC has invested. The LLC members’ personal assets are not exposed.

Another asset protection advantage of a multi-member LLC is that it is a "charging order protected entity." This means that a judgment creditor of an LLC member can only receive a charging order—a lien on distributions the member might receive from the LLC—rather than forcing the sale of the member’s interest. If the LLC members agree in advance that all of them must consent to distribute profits to a member, they can frustrate the efforts of a creditor to collect on a charging order. Note that charging order protection does not apply to a single-member LLC.

What is a Florida Limited Liability Company?

Florida LLCs are flexible corporate entities. One or more members invest assets into the LLC and then receive profits or losses from the LLC’s business operations. The LLC can be managed by its members, or the members can designate a manager to run the LLC (the manager may or may not be a member of the LLC).

LLCs are governed by the Florida Revised Limited Liability Company Act (Chapter 605, Florida Statutes). An LLC must be registered as either member-managed or manager-managed. Chapter 605 sets forth default rules on the rights and duties of the LLCs members and managers.

The LLC members may but do not need to execute an operating agreement to precisely define how the LLC will function. The operating agreement typically addresses: how the business will be run, rights and duties of members, and how profits are distributed. In order to take advantage of the asset protection benefits of an LLC, it is crucial to have a properly-drafted operating agreement in place.

How to Form a Florida LLC

Forming a Florida LLC requires filing Articles of Organization with the Florida Division of Corporations, paying a filing fee (currently $125), and appointing a registered agent. You can file Articles of Organization electronically, and the turnaround time is rapid.

Pursuant to Florida law, an LLC must file a report annually and pay the applicable fee (currently $140) in order to remain in good standing.

Transferring Assets to an LLC

When deciding which assets to transfer to an LLC, distinguish between safe (exempt) and unsafe (non-exempt) assets. Homestead property for example, is considered an exempt asset in Florida. Your judgment creditors can not impose a lien on your homestead property, so it is already protected, and should not be transferred into an LLC. Check out our article on Florida homestead creditor protection here.

Instead, businesses, investment real estate, and other non-exempt properties should be placed in LLCs. To reduce collection risks, it’s advisable to place each unsafe asset in its own LLC.

Collections of Florida LLC

Generally, creditors have limited ability to collect against a debtor’s Florida LLC interest. A creditor cannot seize or garnish an LLC membership interest, nor garnish the LLC’s financial accounts or real estate.

Florida Statute 605.0503 provides that a judgment creditor’s sole remedy against a debtor member of a multi-member LLC is a "charging order.” This charging order allows the creditor to receive any distributions that the LLC makes to the debtor. However, if the LLC does not make any distributions, the creditor receives nothing. A well-drafted operating agreement can give the debtor the ability to veto distributions and otherwise prevent creditors from participating in management.

It is important to note that single-member LLCs do not enjoy the same level of protection as do multi-member LLCs. In Olmstead v. F.T.C, 44 So. 3d 76 (Fla. 2010), the Florida Supreme Court held that a creditor may foreclose on a debtor’s interest in a single-member LLC. The court determined that the purpose of Florida’s statutory charging order protection for LLCs was to protect the interests of the non-debtor members of an LLC from debtor-members’ creditors. It therefore held that a creditor could foreclose on a debtor’s entire interest in a single-member LLC if a charging order did not prove to be an adequate remedy.

A member’s interest in a Florida Limited Liability Company (LLC) is considered personal property. This is true regardless of where the LLC was established. This means that, if a creditor obtains a judgment against a member of a foreign LLC who resides in Florida, it may collect against his LLC interest in a Florida court. For this reason, forming an LLC in another state or country is not usually an effective strategy to avoid your creditors.

Protecting Assets When You Are the Only Member of the LLC

One strategy to get charging order protection while maintaining exclusive control over your LLC is as follows: Create a Florida Limited Liability Limited Partnership (LLLP), which also has charging order protection, alongside your LLC. In this structure, you would be one member of the LLC, and the LLLP would serve as the second member. You would then get enhanced asset protection while maintaining dominion over your assets. The only drawback is that you would be responsible for the fees and paperwork of two entities on an annual basis.

LLCs in Estate Planning

An LLC can also be an effective estate planning tool. You can avoid probate of your LLC interest by putting it into a trust or putting inheritance language in the LLC’s operating agreement. If you die without a succession plan for your LLC interest, that interest will become part of your probate estate.

In summary, a Florida LLC offers robust protection for personal assets and is a vital tool in both asset protection and estate planning. Proper structuring and careful management of the LLC are key to maximizing these protections.

Examples of LLC Asset Protection

Real Estate Investment Protected by Multi-Member LLC
Jane owns an investment property in Florida, which she places in a multi-member LLC with her husband, who holds a 1% interest. After a tenant slips and falls on the property and sues for damages, the LLC is named in the lawsuit. Because the property is owned by the LLC, only the LLC’s assets—specifically, the investment property—are at risk. Jane’s personal assets, including her home, savings, and car, are protected from the lawsuit.
LLC Protecting Rental Income from Personal Judgment
Sarah and her business partner, Mike, own a rental property through a multi-member LLC. The LLC’s operating agreement states that both members need to approve LLC distributions of profits to the members. Sarah is involved in a car accident unrelated to the business, and the injured party wins a judgment against her personally. The creditor obtains a charging order against Sarah’s distributions from the LLC but cannot force a sale of the rental property or seize the LLC’s assets. As long as the LLC decides not to distribute profits, Sarah’s investment remains protected.
Improperly Commingled Personal and LLC Assets
Tom owns a small retail store through his LLC but fails to maintain a clear distinction between his personal and business finances. He regularly uses the LLC’s bank account to pay personal bills. When the business faces a lawsuit, the court “pierces the corporate veil” because Tom did not treat the LLC as a separate entity. As a result, the LLC’s limited liability protection is lost, and Tom’s personal assets are now at risk to satisfy the judgment.

In summary, the protections afforded by charging orders, particularly in multi-member LLCs, offer robust defenses. By structuring your LLC strategically, you can maximize asset protection and minimize the risk of a creditor collecting against your LLC interest.

Protecting Assets with an LLC