Limited Liability Companies (LLCs) generally provide greater asset protection from creditors for the debtor owner. "With the proliferation of LLCs, it must be asked, however, if a state court will give full faith and credit to a charging order that arises from an LLC formed in another state?" asks Asset Protection Plan Attorney Bruce Givner. In other words if an LLC is formed in Nevada and does business in California, will Nevada respect a California charging order if Nevada law would have reached a different decision? According to a Florida Bankruptcy Court, the answer is "Yes."
In In re Inman, a Husband defaulted on alimony payments. In re Inman, 2012 WL 2309359 (Bkrtcy.S.D.Fla., Slip Copy, June 18, 2012). Wife obtained a Florida judgment on the divorce agreement which she domesticated in Colorado. Wife then won charging orders against Husband's interest in three LLC entities formed in Colorado. The Bankruptcy Court denied Husband's challenge to the Colorado charging orders:
In Colorado, “[a] final judgment is defined as one which ends the particular action in which it is entered, leaving nothing further for the court pronouncing it to do in order to completely determine the rights of the parties involved in the proceeding …It is clear from the face of the Charging Liens, which were not stayed, appealed or otherwise challenged, that they ended the action and left nothing for the Colorado Court to determine with regard to the rights of the Plaintiff and the Defendant.
"Since not all states have the same charging order laws, this decision may encourage some creditors to forum shop a charging order to a state that is more creditor-friendly," concluded Givner. "In constructing an asset protection plan, this must certainly be considered to construct the best asset protection plan for a client."
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