Florida Legislature Addresses Olmstead

We wrote about the asset protection legislation being considered by the Florida Senate and House of Representatives.  Well, both houses passed the bill, and it is now just awaiting the Governor’s signature.  Here’s what the new law means for Florida asset protection:

Florida Single-Member Limited Liability Companies are Dead

If you business or other significant assets are tied up in only a Florida single-member limited liability company (i.e. if your limited liability company has only one owner), call Lodmell & Lodmell RIGHT NOW!  The effect of the new legislation, assuming the governor signs it into law, will be to allow for the foreclosure of single-member limited liability company (“LLC”) interests.

For example, assume an entrepreneur is the sole owner of an LLC.  Assume further that the entrepreneur is found at fault for killing someone in a car accident or defaulting a large personal loan, the plaintiff in the lawsuit may very well be able to “step into the shoes” of the entrepreneur with respect to the LLC.  In other words, if the entrepreneur has any kind of judgment entered against her, the creditor (a.k.a. plaintiff) can simply remove the entrepreneur from her LLC and take her place.  That’s scary!

Multi-Member LLCs Get More Protection

While this legislation makes Florida single-member LLCs the most vulnerable type of business entity (known as a foreclosure entity), it also confers the most beneficial asset protection status to multi-member LLCs.  Once (if) this law takes effect, multi-member LLCs will be charging order protected entities.  A charging order is an exclusive remedy available to judges.  In other words, it acts as a limit on the way that judges are permitted to access assets held in an LLC for the benefit of creditors or plaintiffs.

Consider the entrepreneur we discussed above again for a moment.  If her business was held in a multi-member LLC, the only remedy available to the plaintiff would be a charging order, not the ability to take over and own the LLC.  If a plaintiff or creditor does obtain a charging order, that means he or she is entitled only to income distributions from the LLC, but the LLC members still get to control when and if such distributions are made.  Even better . . . in some cases owners of the LLC can allocate income but not distribute it, which has the effect of sticking your creditor with a tax bill even though they’ve received no money!

So the new Florida law does two things: First, it strips protections from one type of entity (single-member LLCs).  Second, it adds a significant layer of protection to another type of entity (multi-member LLCs).

The new Florida law has very little impact on existing clients of Lodmell & Lodmell.  We anticipate activist judges and unpredictable legislatures when we create asset protection plans so that you know your assets are always safe.