Can I better protect against creditors by having my assets in a limited liability company instead of a corporate entity?

In some instances, yes.  If your debt is unrelated to your assets (e.g., auto accident liability or malpractice liability) and if your assets are in a corporation, creditors can enforce a court judgment by taking away your stock in the corporation.  With an LLC, however, your creditors may only be able to obtain what is known as a “charging order.”  A charging order will not allow your creditor to take your limited liability company interest away from you like taking stock in a corporation.  Instead, it merely gives the creditor the right to be paid any distributions that would otherwise be made to you from the LLC.  If no distributions are made, the creditor gets nothing.  As a result, with an LLC, your creditors are more likely to consider settling their claims on terms more favorable to you.

Posted in: Asset Protection and Business Planning