New York Asset Protection Lessons

Some states are more favorable to asset protection than others.  One way to tell whether a state is favorable to asset protection is to look at whether it has a charging order statute in place.  Some state statutes specify that a charging order is the exclusive remedy available to creditors in certain situations.  For example, assume that a doctor owns a limited liability company in a charging order jurisdiction, and further assume that a patient sues the doctor for malpractice and wins.  Are the assets in the limited liability company safe?

What Is A Charging Order

A charging order is a remedy that allows creditors–people like the patient who wins a malpractice suit–to collect distributions from a limited liability company or family limited partnership.  Charger order statutes specifically disallow a creditor from becoming an owner of the membership or partnership interests in a business entity.  In the example above, the assets in the doctor’s limited liability company are beyond the reach of the creditor-patient.  If a charging order is entered, however, then the creditor-patient may be entitled to receive the doctor’s share of cash distributions made by the limited liability company.

New York Asset Protection Laws Clarified

Whether or not a charging order is the exclusive remedy available to a creditor is a question that gets complicated when more than one state is involved.  For example, if you live in New York but own assets that are located in New York via a Florida limited liability company, what law applies?  Consider the case of Sweeney, Cohn, Stahl, & Vaccaro v. Kane. In that case, a married couple placed their New York residence in a Florida corporation.  When a creditor tried to pierce the corporate veil, the New York Supreme Court Appellate division held that Florida law applied to the question of whether corporate assets could be used to satisfy a personal judgment.

To be sure, piercing the corporate veil is separate and apart from charging order protection.  But it stands to reason that if New York courts apply the laws of the state of incorporation for corporate veil piercing issues, then they might just do the same for asset protection issues like charging orders.  As a result, the best New York asset protection attorneys will always recommend using business entities that are formed in charging order jurisdictions.  It just makes sense to add as many layers of protection as possible.